The long-term outlook for Sierra Wireless Inc.’s acquisition of machine-to-machine company Wavecom SA is positive, but the company will face some bumps in the short term, according to an Oppenheimer analyst.
In a note to investors, George Iwanyc said Sierra Wireless’ $277 million purchase of Wavecom gives the Canadian modem maker critical mass in the high-margin M2M space and adds product, customer and regional diversification.
However, buying the French provider of embedded wireless technology for M2M communications cuts into Sierra Wireless’ cash support and adds integration risk, according to Iwanyc. The faltering economic climate will also impact the company’s bottom line next year.
“We expect a difficult ’09 for both and are tempering our estimates for the weak market,” according to Iwanyc.
Stock for both companies fluctuated after the announcement of the sale last week. Sierra Wireless stock was down slightly at about $7 per share. Wavecom stock was up about 10%.
A friendly takeover
The announcement was termed as a “friendly deal” between Sierra Wireless and Wavecom, which is based in Paris. The agreement ended the hostile takeover attempt of Wavecom by Gemalto NV.
Gemalto announced its intentions to purchase Wavecom in October but after the agreement was announced with Sierra Wireless, Gemalto said it would not raise its bid for Wavecom and bow out.
“As part of its mid to long-term strategy, Gemalto has several options to grow in the M2M market and in others,” Gemalto CEO Olivier Piou said in a statement. “We did not intend to bid at a price that would not be in the best interests of Gemalto and its shareholders.”
Gemalto offered an unsolicited bid to buy Wavecom for about $9 per share, which at the time represented a 72% premium over the stock’s worth at the closing of the Oct. 3 market. Wavecom’s leadership called the offer inadequate.
Sierra Wireless has agreed to pay about $11 per share and $40 per OCEANE convertible bond in its purchase of Wavecom. The company’s board of directors unanimously approved of the sale to Sierra Wireless.
With the acquisition, Sierra Wireless plans to expand its position in the M2M market.
“Wavecom will significantly increase our scale and capabilities in Europe and Asia,” Sierra Wireless CEO Jason Cohenour said in a statement. “We believe this acquisition will deliver long-term strategic advantage and profitable growth.”
Wavecom will operate as a Sierra Wireless business unit in Paris. With Wavecom, Sierra Wireless plans to focus on product development and sales of M2M embedded modules, M2M terminals and M2M software, solutions and services.
Sam Lucero, ABI Research senior analyst for M2M connectivity, said Wavecom will make Sierra Wireless a player in the mainstream M2M market.
So far, Sierra Wireless has been developing products for the M2M market that operate on 3G networks, but the majority of the market sells products that operate on 2G and 2.5G networks.
“We don’t anticipate 2G networks to be turned off in the next 10 to 15 years,” he said.
Sierra Wireless also moves into an area where their competitors in the laptop connection market such as Huawei Technologies, L.M. Ericsson and Qualcomm Inc. have yet to enter. Wavecom is a major player in the M2M module market and is battling Centurion Wireless Technologies for market share. Wavecom’s focus has been on providing modules for automotive OEM and home security.
“This is an interesting move,” Lucero said of the pending sale. “M2M is projected to be a high-growth market. This is an area where the carriers are interested in and it has a lot of potential.”
Sierra Wireless is expected to use existing cash to purchase Wavecom and the deal is expected to be completed early next year.
“Sierra Wireless and Wavecom are a natural match,” Wavecom CEO Ronald Black said in a statement. “Together, the companies are well positioned to provide the most competitive solutions in the market and to become a leader in wireless data.”
Article modified extensively Dec. 9 to include additional commentary and context.
