During the company's recent earnings conference call, Sierra Wireless CEO Jason Cohenour made no secret of his plans: "Our goal is to accelerate growth and value creation through a targeted M&A strategy. We have an excellent track record of acquiring great companies, integrating them well and creating value for shareholders. We intend to extend this track record."
Sierra Wireless announced in January its intent to sell its AirCard unit to Netgear for $144.5 million. At the time, the company said the move would allow it to get out of the USB modem and hotspot business and focus solely on machine-to-machine connections. The transaction closed April 2, and now Sierra plans to use the cash it generated from the sale to bolster its burgeoning M2M business.
"We also plan to put our transaction proceeds to work in acquiring great M2M companies to help us further expand our position in the value chain, strengthen margins and drive growth," Cohenour said on Sierra's first quarter earnings conference call, according to a Seeking Alpha transcript of the event. "I believe our track record of doing this is proven. Since 2008 we've grown our M2M business organically and through acquisition from $158 million to nearly $400 million, a growth rate of nearly 26 percent. We've done this while improving our margin profile and defensibility. Our aim is to do more of this, and in so doing, deliver a great return for shareholders."
Cohenour noted that Sierra is now an "M2M pure play" with 33 percent market share and a pro forma cash balance in excess of $160 million.
Sierra is no stranger to mergers and acquisitions. In 2007 the company purchased AirLink Communications for $27 million in cash and stock; in 2008 it purchased Junxion and then separately Wavecom for $275 million; and in 2012 Sierra bought Sagemcom's M2M networking business for $56.7 million.
Moreover, the M&A scene in the M2M industry appears to be heating up. Avista Capital Partners announced plans just last month to purchase M2M vendor Telular in a deal worth $253 million.
When questioned about the potentially rising cost of acquiring M2M companies, Cohenour acknowledged that "especially if they're good companies like Telular … they're not going to go cheap."
But there's no real surprise that Sierra remains interested in the global M2M industry. According to Berg Insight, the M2M market is just getting going, and it will soar to 359.3 million total M2M cellular connections in 2016.
As for Sierra's first quarter, the company reported revenue of $101.4 million, up 9.8 percent from the $92.3 million Sierra notched in the first quarter of 2012. The company's gross margin was $33.4 million in the first quarter, up from the $27.9 million Sierra reported in the year-ago quarter.
Investors appeared pleased, sending the company's stock up after the earnings announcement from around $10.80 per share to around $11.50 per share.
- see this earnings release
- see this Seeking Alpha earnings call transcript
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