CommScope, which provides and manages wired and wireless networks globally, has networking solutions for data centres and markets a portfolio of products for mobile networks, has agreed to acquire ARRIS International in a deal worth $7.4 billion. Described by ARRIS CEO Bruce McClelland as “the kind of strategic opportunity that is rare in business, and a combination that creates an industry leader by any measure”, the acquisition creates an $11+ billion revenue company that is determined to capitalise on key industry trends including network convergence, fibre and mobility everywhere, the advent of 5G, the Internet of Things and rapidly changing networking and technology architectures. The two companies say the transaction is a critical step in fueling growth, shareholder value and customer benefits.
The Carlyle Group, a global alternative asset manager, has re-established an ownership position in CommScope through a $1 billion minority equity investment as part of the financing for the transaction. It now holds 16% of existing CommScope shares. CommScope is predicting immediate operating synergies, partly through procurement, amounting to $60 million in the first full year after closing and more than $125 million in year two, with ongoing savings of $150 million per annum from year three onwards.
The real focus is on growth, however, driven from a huge customer base and a network of 10,000 channel partners. It is estimated that the new company will double its total addressable market for products thanks to complementary assets and capabilities. It will also have 15,000 combined patents and spend around $800 million in annual R&D investment as a combined entity.
Growth segments are identified as: Converged small cell solutions for licensed and unlicensed wireless spectrum; Complementary wired and wireless communications infrastructure; Integrated broadband access; Private network solutions for industrial, enterprises and public venues; and Comprehensive connected and smart home solutions.
Eddie Edwards continues as President and CEO of CommScope, with Bruce McClelland and other members of the ARRIS leadership team joining the combined company. McClelland says of the deal: “We are excited for what this combination will deliver for our customers, partners and employees. We expect to further advance our strategy to drive innovation across our iconic brands and pioneer the standards and pathways for tomorrow’s personalised, connected, always-on consumer experience. ARRIS will become part of an even stronger, more global industry leader.”
He added: “ARRIS and CommScope both believe that shaping the next era of connected communications is an unprecedented global opportunity and we each realise that to achieve our vision, we need a broader set of products and services that can help all of our customers achieve their goals. We have complementary products and services. CommScope is already a leader in communications networking, an area ARRIS has been rapidly developing. Our networking businesses – on both the ARRIS and Ruckus sides – add important new options to CommScope’s current portfolio. And the rest of ARRIS establishes a key cornerstone of the connected future.
“ARRIS and CommScope share a deep commitment to technology excellence,” McClelland continues. “This is a terrific match of cultures. And that’s important because winning these new opportunities will require rich and rapid innovation.”
ARRIS has strong leadership positions in the three segments in which it operates. These are: Customer Premises Equipment (CPE), featuring access devices such as broadband modems, gateways and routers and video set-tops and gateways; Network & Cloud (N&C), combining broadband and video infrastructure with cloud-based software solutions; and Enterprise Networks, incorporating the recently acquired Ruckus Wireless and ICX Switch businesses and focusing on wireless and wired connectivity, including Citizens Broadband Radio Service solutions. ARRIS generated revenues of approximately $6.7 billion in the 12 months to September 30. These break down as $3.9 billion from CPE, $2.2 billion from N&C and $568 million from Enterprise Networks (reflecting only a partial year of Ruckus since its acquisition in December 2017).
The transaction is expected to close in the first half of 2019, subject to the satisfaction of customary closing conditions, receipt of certain regulatory approvals and approval by ARRIS shareholders.