February 6, 2023
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Semtech closes $1.2B acquisition, could see big bounce back in 2023

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Camarillo-based Semtech Corp. closed its acquisition of Sierra Wireless, it announced on Jan. 12, setting the stage for the semiconductor company to reach new heights.

Semtech, which specializes in the Internet of Things applications, concluded its months process with an all-cash transaction worth about $1.2 billion, making it the largest acquisition in the company’s history.

The process was made longer after the Department of Justice requested additional information from both Semtech and Sierra over the proposed acquisition on Oct. 17.

Overall, Semtech paid $31 a share for Sierra, 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.

Sierra will now be delisted from both the Nasdaq and the Toronto Stock Exchange.

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.

“Sierra Wireless brings nearly 30 years of leadership in cellular IoT and a strong and diverse device-to-Cloud IoT solutions portfolio. Combined with Semtech’s LoRa-enabled end nodes, we believe we are very well positioned to deliver a highly differentiated, end-to-end platform to enable the transformation to a smarter, more sustainable planet,” Mohan Maheswaran, Semtech’s president and CEO, said in a press release. 

Helping finance the deal was a private debt placement, as the company raised about $300 million to help pay for the deal.

The company announced a $250 million in convertible senior notes on Oct. 6 and upped the total to $300 million the next day.

The notes will pay 1.625% interest per year and will mature on Nov. 1, 2027.

About 90% of the proceeds went toward financing the purchase of Sierra Wireless. 

With this transaction, Semtech believes it will double its annual revenue, with Sierra adding $100 million of high-margin recurring revenue to the company’s fastest-growing and most profitable sector — its wireless and sensing products group.

Semtech added it expects the acquisition to have a run rate of $40 million within 12 to 18 months post close.

“Our combined company will have strong expertise in high bandwidth cellular connectivity, ultra-low power LoRa connectivity, IoT software and services, and extensive knowledge of IoT hardware and software channels and vertical markets,” Maheswaran said.

“We believe that Semtech is uniquely positioned to deliver a strong product portfolio and service model to customers across high growth IoT segments.”

Semtech’s wireless and product sensing group is led by its LoRa platform, which has three main parts: a physical chipset, cloud services and a low-power, wide-area networking protocol designed to wirelessly connect battery operated devices to the internet through regional, national, or global networks. 

The LoRa platform is a very low-power and long-range way of sending small amounts of data.

Maheswaran believes this will fit in very nicely with Sierra’s IoT cloud software platform that offers device management, network management and end-to-end security to enable the digitization of industrial assets.

Still, analysts were not as high on the move when it was first announced in Aug. 

Since the deal was announced on Aug. 2, shares have dipped over 40%, with many investors unsure that Semtech’s acquisition of Sierra would make the big splash it believes it will.

Investors were also nervous about the high cost of the deal, $1.2 billion.

Some analysts are higher on the stock than others, however, in 2023. 

Scott Searle, managing director and senior research analyst at Roth Capital Partners named Semtech as his top stock to watch in the wireless, communications and IoT sectors. 

He believes the stock massively underperformed in 2022 as headwinds in supply chain and other areas led to an overall negative view of the industry as well as the concerns regarding the acuqsiton gave a much more negative outlook on Semtech then necessary.

Searle argued in a note that core trends in the semiconductor industry are stabilizing, that consumer integrated circuits have overcorrected, that the company has a strong core integrated circuit portfolio position and that adding Sierra will be highly accretive to the company’s business and value going forward.

“We believe that as the page turns into 2023 and SWIR acquisition closes, investors will take notice,” Searle wrote in a note.

The acquisition announcement was made after the markets had closed on Jan. 12. 

On Jan. 13, shares of Semtech closed up 1.7%, or about 53 cents to end the week at $31.24 a share.

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