Technology -- Communications Technology -- Wireless Equipment
SALE OF AIRCARD BUSINESS TO NETGEAR
PROVIDES CAPITAL TO DRIVE M2M GROWTH
Investment recommendation: Sierra Wireless announced an agreement
to sell substantially all of the assets and operations related to its AirCard
business to NETGEAR for $138M in cash and approximately $6.5M in
assumed liabilities. Management expects the transaction to close in
March 2013. Sierra will retain its AirPrime embedded module and core
M2M business units. We believe the $100M of net proceeds provides
Sierra with significant financial resources and capacity to focus on its
higher-margin M2M business and expand its leading M2M product
portfolio. We reiterate our BUY rating and $14 price target.
? Sierra Wireless announced preliminary 2012 results with sales of
$644M, in-line with our $643 estimate. Embedded laptop module sales
of $14M and implied M2M sales of $95M were slightly above our
$13.3M/$92.6M estimates. Management will provide additional
financial details on the retained businesses on February 6.
? We believe this transaction supports our thesis for consolidation of the
fragmented but strong growing M2M market. Given Sierra’s strong track
record of successfully integrating its Airlink, Wavecom, and Sagemcom
acquisitions to grow the M2M franchise, we believe Sierra can
successfully use the $100M in proceeds to profitably grow its M2M
business faster than our 16% M2M hardware market revenue CAGR.
Please see our M2M industry report published November 5 titled
“Overview of investment opportunities in burgeoning M2M market” for
additional detail about growth drivers in the M2M market.
? While we anticipate the transaction will be dilutive to our 2013 pro
forma EPS estimates, we believe the $100M in additional cash and the
increased focus on growing its M2M franchise positions Sierra for much
stronger long-term earnings growth.
Valuation: Our $14 price target is based on shares trading at roughly
14x our 2013 pro forma EPS estimate.