August 13, 2022
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Semtech announces $1.2B Sierra Wireless acquisition

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Semtech Corporation, a Camarillo-based semiconductor company specializing in Internet of Things applications, is making its largest acquisition ever, announcing Aug. 2 that it will buy Sierra Wireless for $1.2 billion.

Based in Vancouver, Canada, Sierra Wireless also makes components for Internet of Things applications. “Internet of Things” refers to devices connected to the internet that aren’t traditional computers, tablets or smartphones, items like smart refrigerators or agricultural irrigation systems.

Semtech said it will acquire all shares of Sierra at $31 a share, a premium of approximately 25% over the closing price of Sierra’s common stock on July 29, the last trading day prior to media speculation regarding a potential transaction, and a premium of approximately 30% to Sierra Wireless’ unaffected 30-day volume weighted average price.

Shares of Sierra closed at $28.15 on Aug. 2, before the deal was announced but after Bloomberg News reported that an acquisition was likely.

Semtech intends to fund the transaction with cash on hand and committed debt financing arranged by J.P. Morgan, the company said. It expects the acquisition to close in Semtech’s fiscal year 2023.

Shares of Semtech are down 11.2% since it opened at $62 on Aug. 1, closing at $55.34 on Aug. 2. In after-hours trading, the company saw shares climb less than 1% following the announcement of the deal.

“We are delighted to be entering into this important and exciting transaction,” Mohan Maheswaran, CEO of Semtech, said during the company’s investor call announcing the acquisition.

Semtech said it expects to keep all Sierra employees through the transaction.

Maheswaran added that the acquisition will “approximately double the scale of Semtech” and increase the company’s anticipated growth rate to an approximate 15% compound annual growth rate over the next five years.

Additionally, the company’s revenue will reach approximately $1.5 billion once the deal closes, and Semtech has increased its five-year target to $3 billion in annual revenue.

Sierra’s IoT cloud software platform offers device management, network management and end-to-end security to enable the digitization of industrial assets. Semtech believes the acquisition will fit in nicely with the company’s LoRa IoT platform. The LoRa platform is a very low-power and long-range way of sending small amounts of data.

The deal will also significantly expand Semtech’s potential market and create a strong and diverse portfolio of connectivity solutions for the growing IoT market, the company said.

According to Semtech, the new cloud services capability is expected to add more than $100 million in high-margin recurring revenues immediately.

 “The acquisition of Sierra Wireless will bring together the ultra-low power, long range and network flexibility benefits of LoRa technology together with the low latency, high bandwidth and global network coverage benefits of cellular technology along with a uniquely differentiated shift to cloud services that will bring IoT deployment simplification to the entire IoT industry,” Maheswaran said. “Combining their capabilities with LoRa cloud will make it even easier to connect, manage and move data.”

In the first quarter of fiscal year 2022-23, which ended May 1, Semtech reported revenue of $202.1 million, up from $190.9 million the same quarter a year ago.

That revenue growth was driven by record wireless and sensing products group net sales, which grew 8.6% sequentially and 15% year-over-year, driven by record LoRa-enabled sales.

“Modern IoT solutions have to be battery-powered and they have to be cost-effective, and LoRa is a technology that’s specifically designed to answer that need,” Alistair Fulton, the vice president, and general manager of the Wireless and Sensing Products Group at Camarillo-based Semtech told the Business Times in October.

“Our vision is to be the premier cloud IoT platform provider that helps our customers accelerate their digital transition to the Internet of Everything, for all use cases globally,” Maheswaran said in the Aug. 2 investor call. “This acquisition comes at a very important time in the market, as we believe the world is at a critical inflection point in utilizing technologies, technology solutions, to enable a smarter and more sustainable planet.”