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Tuesday, October 6, 2009

More M&A Activity: Cisco/Tandberg, Others; Solid Balance Sheets Provide Kindling

Following up on our corporate M&A activity post on 9/21/09, we're seeing more deals:
  • This morning, Emerson Electric (EMR, $40.00) announced plans to acquire Avocent (AVCT, $24.82) for $1.2 billion ($25 per share), or 2.2 times 2009E sales of $540 million and 17 times 2009E earnings of $1.47. Avocent Corporation "designs, manufactures, licenses, and sells software and hardware products and technologies that provide connectivity and centralized management of information technology (IT) infrastructure in the United States and internationally". Despite operating in an area with favorable secular growth trends, consensus 2009 revenue for Avocent is down 18% Y/Y, with an 8% rebound expected next year.
  • Yesterday, Nuance Communications (NUAN, $14.79) announced plans to acquire privately held eCopy for $54 million in stock. We can't find current financial data for eCopy, but the company had $62 million in sales for its FY06 (end July) and presumably kept growing in the past few years.
  • Last week, Cisco (CSCO, $23.41) announced a deal to acquire Tandberg (listed in Norway) for approximately $3.0 billion, or 3.7 times 2008A sales of $809 million and, according to this Reuters article, the "offer values Tandberg at about 23 times 2010 earnings, analysts say, slightly above U.S. rival Polycom's multiple of 21.7". For 2Q09, Tandberg reported revenue of $204.6 million (+5% Y/Y) with operating profit of $43.0 million (+4% Y/Y, 21% operating margin). In 2Q09, TANDBERG sold 15,663 video conferencing endpoint units (down 5% Y/Y overall, but a 4% increase excluding OEM units) with endpoint revenue of $122 million down 5% Y/Y and 60% of total revenue. Revenue from network products grew 25% and service revenue grew 22% Y/Y.... We probably don't need to say this, but Cisco is increasingly the global arms dealer of networking gear.
Our list is not all inclusive -- there likely have been more transactions in recent weeks. Plus, rumors are circling around a number of other companies, including Brocade Communications (BRCD, $9.24) , DirecTV (DTV, $27.65), and GE's NBC unit.

Bottom-line: as pointed out in the Bloomberg article referenced in our earlier M&A post, many companies are flush with cash, generating more cash, and paying very little for borrowed money (i.e. extremely low rates are reducing interest expense and boosting earnings/cash flow). Despite lingering economic challenges and recurrent media/investor doubts, we see solid balance sheets with mountains of cash as at least one reason for optimism.

Happy investing,

Jeffrey Walkenhorst

Disclosure: none.

© 2009 Jeffrey Walkenhorst
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