Contact: Scott Denne
Technicolor fends off the danger from a merger of two rivals with a deal of its own. And what a deal. Technicolor will pay $600m for Cisco’s set-top box hardware unit – a mere 0.3x projected 2015 sales – and become a business that generates more than $3bn in set-top box revenue. Still short of the pending combination of ARRIS and Pace, but close enough to ensure that Technicolor won’t lose that battle based on scale alone.
Aside from the valuation – ARRIS’s purchase put a 0.8x trailing multiple on Pace – the two deals are quite similar. By tying up with Cisco, Technicolor gets broader exposure to the North American cable market to complement its European satellite base; ARRIS bought Pace in large part to boost its non-US sales.
Cisco’s set-top box unit needs some tuning – the cause of the lower multiple. In its previous fiscal year, sales of service-provider video infrastructure dropped by $812m, primarily due to lower set-top sales. In the first three quarters of the current fiscal year, the category slipped $271m, with the company once again blaming set-tops. Technicolor will pay Cisco $450m in cash and $150m in newly printed equity (with a lock-up commitment), and give the networking vendor a seat on its board.
It’s not just competition from ARRIS. Technicolor needs scale to continue to compete for the largest deals among service providers, which are themselves consolidating. According to 451 Research’s M&A KnowledgeBase, the past 12 months alone have seen seven acquisition of television service providers valued at more than $1bn.
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