Belden announced it has closed the acquisition of Snell Advanced Media (S-A-M).
Terms of the deal were not disclosed.
The deal makes Grass Valley one of the largest media technology suppliers.
Clearly the company believes there is growth to be had in broadcast. At the company’s December 2017 investor day, Belden CEO John Stroup said “I think that we have a lot more conviction around what’s happening in the broadcast industry than we did two years ago. And as you recall – or you may recall, our concentration within production, in particular around live, gives us a lot more confidence that we’re going to see growth in that end market than we did, say, in the last two to three years.”
Although at first glance there is substantial product overlap between Grass Valley and S-A-M, there are less similarities between each company’s geographic sales footprint, which will help Grass Valley expand into new customers. A Grass Valley spokesperson said that the deal would help the company extend its reach and provide in-region support to its global customer base.
Additionally, a number of each company’s respective product lines are complementary (in news for example), making the overall Grass Valley proposition more robust.
According to Belden management, S-A-M will be integrated into Grass Valley, and moving forward the S-A-M brand name will be retired, and “Grass Valley, a Belden Brand” will be used as the company name.
Tim Shoulders will be the president of the combined company, which will be headquartered in Montreal.
Belden executives cited multiple strategic reasons for the deal, including gaining market share, and an expanded geographic footprint.
“With this investment Belden again demonstrates our commitment to the broadcast industry. Adding SAM’s employees and products to the Grass Valley family extends Grass Valley’s global reach, makes us more agile and provides even more domain expertise to enhance Grass Valley’s industry-leading solutions in networking, news and live production and content delivery for broadcasters,” said Shoulders. Our customers face competition and uncertainty like never before. This transaction will help them navigate the technology options available to them with fewer concerns around interoperability and deployment complexity while providing them greater access to the innovators developing the solutions of tomorrow.”
Prior to doing this deal, Belden did substantial work to refinance its debt, which provided additional financial leverage for M&A. Indeed, the company’s CFO often refers to the amount of “dry powder” that the company has available for M&A. At the company’s investor day, Stroup said “We [are] extremely pleased with the execution of our debt refinancing and repayment during the quarter. By issuing €450 million of senior subordinated notes at 3.375% and €300 million at 2.875%, the lowest long-term borrowing rates in the history of the company, we have further lowered our cost of capital and extended our maturities. In total, we expect these actions to be accretive to EPS by $0.47 on a full-year basis.
Reminiscent of Previous Industry Roll-ups
The S-A-M deal is Belden’s fifth acquisition in the media and broadcast technology sector.
- In December 2009, Belden acquired Telecast Fiber Systems Inc for $20.1 million in cash
- In July 2012, Belden completed the acquisition of Miranda Technologies for C$371.6 million (US$356.9 million) in cash
- In January 2013, Belden acquired Softel Ltd for GBP5.8 million (US$9.1 million), and merged it into Miranda
- In April 2014, Belden acquired Grass Valley from Francisco Partners Management LLC for $220 million, and subsequently merged it with Miranda and named the combined company Grass Valley
In addition to these transactions, Belden acquired KVM switch vendor Thinklogical in May 2017 for $171.3 million in cash, and added it to the company’s Broadcast Solutions segment for reporting purposes.
Including Thinklogical, Belden has invested $779.4 million in the broadcast industry since 2009. When the company discloses the price paid for S-A-M, the thoal amouint will be known.
This level of investment is reminiscent of previous industry “roll-ups.”
Between 2000 and 2009, Harris Corporation spent approximately $1 billion on the acquisitions of vendors including Louth, Encoda, and Leitch. In 2012, Harris Corporation divested its broadcast division in a deal valued at up to $225 million.
A decade earlier, Technicolor (then Thomson) spent even more to acquire a slew of media technology supplier including 5 businesses of the Philips Professional Broadcast group (Cameras, Film Imaging, Signal Processing, Media Networking and Control & Systems), Canopus, PRN, ParkerVision, Nexstream, Thales Broadcast & Multimedia, and (coincidentally) Grass Valley.
Starting in 2010, Technicolor divested these businesses in separate transactions:
- 2010 – Thomson Broadcast (Grass Valley) (deal value $25.6 million cash, plus $80 million promissory note
- 2011 – Transmission business (deal value “non material”)
- 2011 – Thomson Video Networks (deal value $8.2 million)
So why does Belden think it will be different for them?
Speaking at the 2017 Devoncroft Media Technology Business Summit, Belden CEO John Stroup said “Of all the industries we’re in, [media and broadcast] is the industry where the economic capabilities of the vendors are the least developed, and that creates a lot of stress for us.
“We would obviously prefer that all vendors were making good economic investments, because [today] we’re all investing in everything, and that doesn’t lead to particularly good economic returns. I think we’re all searching for a level of scale, because I think this is a business that requires a lot of scale from a commercial point-of-view. To operate globally, you need to generate the amount of revenue that gives you the scale from an R&D point of view. So, what we’ve been trying to do with our team is teach them different ways to evaluate how much to be spending, where to be spending, and trying to put some rigor and framework around it so we’re not doing anything that’s reckless. Some vendors have gotten themselves into problems…. We’re trying to really careful of where we place our bets.”
With the S-A-M deal, Belden achieves greater scale.
Additionally, the company has previously telegraphed its plan to build a factory in India, in order to lower its cost of production (it is unknown at this time whether the production of Grass Valley or S-A-M products will move to this factory once it opens).
Greater Control of the IP Transition?
Belden executives often speak about how industry-wide transition to IP-based infrastructure provides potential growth opportunities for Grass Valley. During Belden’s Q4 2017 earnings call, Stroup said Q4 2017 was Grass Valley’s strongest-ever quarter for sales of IP-based systems, and predicted that IP shipments would accelerate in the future, thanks to the adoption of new standards and increasing custom confidence in IP-based solutions. “We think [the finalization of the SMPTE 2110 standard is] an important development and certainly going to be helpful moving into 2018. We had our strongest quarter ever in IT-based product revenues in the fourth quarter. It was over $5 million. And it was to 36 different customers. So, it’s clear that our customers are getting more confident, more comfortable with the technology. I think they view us as really one of the only solutions that meets the open standard. As we’ve talked about, we have some competitors that have done very well, but their systems and their solutions are far more closed than what we’re offering and what the standard dictates. So, I think that the Grass Valley business, from a product point of view, is very well positioned moving into 2018.”
Indeed, as one of the three founders of AIMS, Grass Valley is a key player in the industry-wide transition to IP-based operations. The acquisition of S-A-M puts Grass Valley in control of more potential IP-related infrastructure refresh projects.
Because the broadcast industry is dwarfed by the broader IT market, the IT “titans” (such as Arista, Cisco, Huawei, and Juniper) tend to use established broadcast suppliers as a route to market. By acquiring S-A-M, Belden now owns two of the top “traditional broadcast vendors,” making it more likely that they will successfully capture market share as the industry transitions to IP-based operations.
The Belden M&A Strategy
It shouldn’t be a surprise that Belden made this acquisition, over the past decade, the company has grown substantially through strategic M&A.
As recently as December 2017, Indeed, Belden routinely touts it well-established approach of acquiring underperforming assets, and generating synergies and cost savings through what it calls “The Belden Business System.”
During its December 2017 analyst day, Stroup told analysts “we continue to actively pursue a number of attractive inorganic opportunities. We currently have $475 million available for inorganic opportunities. We estimate that approximately $1.7 billion will be available through 2020. This will come from organic activities and it would be at or below net leverage of 3 times.
“Over the last three years, approximately 75% of capital deployment has been allocated towards M&A. Going forward, we expect to allocate approximately 55% towards M&A.
“Our acquisition approach always begins with our strategic plan. Nothing enters our funnel of opportunities, nothing begins cultivation until we identify an opportunity as either allowing us to take advantage of an opportunity or to address a threat.
“The companies that we pursue are typically company leaders within their specific area, often niches. They have products that are complementary to ours and typically there are opportunities for significant costs or commercial synergies.
“Typical bolt-on for Belden would be a company with revenue growth that is similar to Belden’s end markets. Gross profit margins are typically greater than Belden. However, EBITDA margins are typically lower than the Belden average.
And by applying our Lean enterprise system, we have the opportunity to achieve EBITDA margins at or above Belden average, achieve ROIC of 13% to 15% by year three and purchase the company for a post-synergy multiple of approximately seven times EBITDA.”
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