By Rhys Meredith, Salah Baaziz, Aaryan Upadhyay and Dominic Zhu (University of Bristol) and Leo Fridjhon, Xinyue Zhang, Li Hanchen, Abraham Vongkhamdy and Sagar Trivedi (Columbia University)
Photo: Jordan Harrison (Unsplash)
Overview of the deal
Acquirer: VIAVI Solutions
Target: Spirent Communications plc
Implied Equity Value: N/A
Total Transaction Size: £1.005bn ($1,277bn)
Closed date: deal close in the 2nd half of 2024
Target advisor: Jefferies, Rothschild & Co, UBS (financial), Linklaters LLP (legal)
Acquirer advisor: Qatalyst Partners, Wells Fargo (financial), Fried, Frank, Harris, Shriver & Jacobson LLP (legal)
VIAVI Solutions ("VIAVI") has announced a strategic agreement, valued at approximately £1,005 million ($1,277 million) to acquire Spirent Communications plc ("Spirent"). The deal is set create a global powerhouse in test, assurance, and security solutions, catering to networking and imminent critical infrastructure such as 5G and 6G. With complementary product portfolios and technologies, the merger aims to fuel growth in verticals such as cloud services, enterprise networks, and private networks. VIAVI anticipates annual cost synergies of up to $75 million, alongside synergistic operational efficiencies. The acquisition is being funded by VIAVI’s existing cash, a $800mn 7-year loan from Wells Fargo and $400mn from Silver Lake, a US based private equity firm. Silver Lakes investment underscores confidence in the value creation of the deal and the future of VIAVI.
“Combining our leading communications test and measurement and optical technologies and Spirent’s high-performance testing and assurance solutions is expected to deliver enhanced product solutions and applications, accelerate growth in new markets and strengthen innovation through expanded engineering and design capabilities. Further, we are uniting two teams with a shared passion for developing compelling and cutting-edge offerings for customers and a commitment to technological excellence. We are pleased to welcome a strategic, long-term investment from Silver Lake in connection with the Acquisition. Silver Lake has an outstanding track record of supporting leading technology companies through both organic growth investments and scale acquisitions.”~ Oleg Khaykin, President and CEO of VIAVI
Company Details (Acquirer - VIAVI Solutions Inc.)
VIAVI Solutions is a multinational technology company focused on communication and sensor systems; it offers a broad range of products, from network optical hardware components to testing and assurance solutions for various systems. Their clients include telecom operators, military, railways, aerospace, and government agencies. Key projects over the coming years include solutions for data centres in cloud computing networks as well 5G & 6G components.
Founded in 2015 (split from JDS Uniphase), headquartered in Chandler, Arizona, USA
CEO: Oleg Khaykin
Number of employees: 3,600
Market Cap: $2.201 Billion (as of 15/03/2024)
EV: $2.399 Billion
LTM (2023) Revenue: $1.01Billion
LTM (2023) EBITDA: $126 Million
LTM EV/Revenue: 2.38
LTM EV/EBITDA: 19.0
Recent Transactions: Acquired Jackson Labs (Mar 2022), Acquired Expandium (Aug 2020), Acquired Cobham AvComm for $455 million (Feb 2018)
Company Details (Target - Spirent)
Spirent Communications is a company that specializes in telecommunications testing and measurement equipment. It offers goods, services, and solutions that support businesses, equipment producers, and network operators in improving the functionality of their networks and services. For evaluating the functionality and dependability of a variety of network technologies and equipment, such as mobile, Ethernet, Wi-Fi, and Internet Protocol (IP) networks, Spirent's products are essential.
Founded in 1949, headquartered in Crawley, United Kingdom
CEO: Eric Updyke
Number of employees: 1500
Market Cap: $1.3 billion (as of 18/03/2024)
EV: $1.22 billion
LTM Revenue: $474.30 million
LTM EBITDA: $48.8 million
LTM EV/Revenue: 2.57
LTM EV/EBITDA: 26.32
Projections and Assumptions
Short-term consequences
Both companies highlight the "complementary" nature of their products. This could create a one-stop shop for customers, allowing VIAVI to leverage Spirent's existing market reach and potentially expand its footprint. Additionally, by combining their engineering expertise, the deal could spark a burst of innovation in the coming year, leading to the development of new, integrated products.
Merging two large companies can be complex. Employees from both companies might experience anxiety about job security, adapting to new company culture, and their future roles. Clear communication and opportunities for collaboration will be crucial to navigating this challenge and ensuring a smooth integration. However, the Chairman of Spirent, Sir Bill Thomas, emphasised that the deal will provide a significant opportunity for employees.
While the deal is seen as positive, there might be short-term confusion as VIAVI integrates Spirent's offerings and sales channels. Customers accustomed to Spirent's products and sales representatives might experience temporary disruption as they adapt to VIAVI's processes. This could lead to a period of decreased sales team productivity as they adjust to the new landscape. While this may prove to be a challenge, both VIAVI’s and Spirent’s product offerings and market position will remain formidable, setting the stage for long-term growth and success once integration issues are overcome.
Long-term Upsides
The deal will be one part of VIAVI's business strategy to gain a larger scale, efficiency, and global market. Due to high similarity in the existing products and applications, such as telecommunication and network testing, the two companies' technology and human resources would be integrated in a highly complementary way, boosting efficient growth in scale. As estimated, the operational efficiencies would lead to a run-rate cost synergy of up to $75 million annually for two years after the acquisition completion. Such achievement of larger scale and better productivity would bring the combined firm more opportunities and competence in gaining market shares. The two firms’ original multi-continental locations considered, the combined firm would also have a chance to expand its international market, leading to an even larger market-share attainment.
In addition, the enlargement of capital, technological and human-talent resources would enhance the combined firm’s capability to upgrade and broaden its product lines. As VIAVI currently provides network testing and monitoring, and Spirent provides services in 5G, IoT, and cloud computing, the combined firm would explore more services and products in more advanced and innovative realms, including high-growth cloud service, enterprise/IT networks, and 6G+. Thus, the deal would also bring revenue benefits from the expansion of product lines and the boost of technological advantages.
Risks and Uncertainties
Many forward-looking statements in the announcement are predicated on current estimates and assumptions about future business objectives and the operating environment. Since the Acquisition depends on unforeseen events and circumstances. Actual outcomes may differ considerably from those stated or inferred in the statements due to changes in global, political, economic, competitive, and regulatory pressures, among other factors. Investors must use caution when making decisions and not depend too heavily on any forward-looking statements.
Spirent's planned acquisition is subject to the disclosure and procedural laws that apply in the United Kingdom. This creates regulatory difficulties even though it deviates from the disclosure obligations of US tender offers and proxy solicitation standards. The acquisition process is made more complex and may provide additional difficulties by the involvement of several regulatory bodies and jurisdictions. Additionally, it is created in compliance with UK accounting requirements, which might not be immediately comparable to US company financial data or data prepared in line with US generally accepted accounting principles.
The directors and officials of Spirent and Bidco are not US citizens, and the companies are incorporated under the laws of England and Wales. Furthermore, a sizable amount of their assets are situated outside of the United States. This creates difficulties for US shareholders and holders of Spirent ADRs when it comes to serving legal papers domestically or upholding court rulings based on US securities laws. The transnational aspect of the transaction creates legal ambiguities that may affect a party's capacity to pursue legal recourse in some jurisdictions.
There may be tax ramifications for US federal income tax purposes if US shareholders or holders of Spirent ADRs receive compensation through the scheme. To comprehend the precise tax implications pertaining to US state and local tax regulations, as well as foreign and other tax legislation, shareholders and holders of ADRs should speak with their independent tax experts. Complicated cross-border taxation and possible differences in tax legislation between jurisdictions create uncertainty and could affect some shareholders' interest in the transaction.
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