ARRIS is going to acquire Pace plc for $2.1 billion in stock and cash to create a company of 8,500 employees that, according to Daniel Simmons, the Director of Connected Home Analysis at the research and consulting firm IHS Technology, will be the world’s largest supplier of set-top boxes, broadband gateway and cable TV technology. He says the combined 2014 revenues of the two companies (US$ 7.9 billion) make it twice the size of its nearest competitor, Cisco’s Service Provider Video business unit. ARRIS says the move will accelerate its growth strategy, enable its large-scale entry into the satellite segment, broaden its product portfolio and enhance its international presence.
The transaction will result in the formation of New ARRIS, which will be incorporated in the UK but have its operational and worldwide headquarters in Suwanee, GA, USA. New ARRIS is expected to be listed on the NASDAQ stock exchange under the ticker ARRS. The proposed transaction has been approved by the respective Boards of Directors at ARRIS and Pace and is expected to close in late 2015 subject to the usual conditions including ARRIS and Pace shareholder approval and a regulatory green light. ARRIS Chairman and CEO, Bob Stanzione, will be New ARRIS Chairman and CEO. The then-current ARRIS Board of Directors will serve as the New ARRIS Board of Directors.
ARRIS already includes what was Motorola Home and its portfolio covers headend products (encoders, transcoders, IRDs, video servers, etc.) core network solutions (primarily cable products including CMTSs, converged edge routers and edge QAMs), access network products (from RF amplifiers to optical nodes), application services as diverse as advertising solutions, content security and quality assurance), and customer premise equipment (whole-home solutions, set-top boxes, cable modems, voice gateways, etc.) Pace offers customer premise equipment (set-top boxes including IP clients, media servers, access gateways, etc.), a software platform covering device software, content security, service delivery and user interface, and some access solutions. This portfolio was itself enhanced by the 2010 acquisition of 2Wire, a provider of advanced residential gateways and associated software, and the 2013 acquisition of Aurora Networks, which made optical transport and access network solutions.
According to Bob Stanzione, ARRIS Chairman and CEO, “This transaction is another example of ARRIS’s ongoing strategy of investing in the right opportunities to position our company for growth. Adding Pace’s talent, products and diverse customer base will provide ARRIS with a large-scale entry into the satellite segment, broaden our portfolio and expand our global presence. We expect this merger will enable ARRIS to increase its speed of innovation.â€
Daniel Simmons at IHS Technology says the future growth for ARRIS critically depended on expansion outside of the US, and the Pace deal enables that. “The current growth opportunity in the US is limited by a stagnating Pay TV market,†he declares. “Pace will bring ARRIS an expansion of width and scale that would be difficult for it to achieve organically.
“Pace has a large portfolio of high-value Pay TV operator clients in EMEA and APAC, a large scale satellite STB business, a strong play in DSL gateways, and a long-standing relationship with DirecTV – all things that ARRIS currently lacks,†Simmons continues.
Allan Leighton, Chairman of Pace, reckons Pace is strongly positioned to execute its existing growth strategy, alone, in the medium and long term, but he believes this deal is a great fit for both the companies involved and Pace employees, customers and trading partners. “We believe that the combination of the complementary ARRIS and Pace businesses will create a platform for future growth above and beyond our standalone potential,†he explains.
Simmons predicts more consolidation in the STB and broadband gateway sector, pointing to a global slowdown in sales. IHS expects the value of the STB industry to fall from US$ 22.7 billion in 2014 to US$ 18.8 billion by 2019. He also reckons the largest opportunity for New ARRIS will come from supplying its Pay TV customers with solutions that will help them fight off OTT competitors, whether that means Apple and Netflix or content creators seeking direct-to-consumer relationships.
“These solutions will only partially include set-top boxes and will place greater emphasis on network and cloud technologies as well as software designed to optimize the user experience. The need to include these elements in a modern TV platform will drive ARRIS and its competitors to make further acquisitions,†he predicts.
ARRIS, which recently formed a joint venture with the US cable operator Charter Communications to acquire the cloud UI provider ActiveVideo, has made it clear that the Pace transaction leaves it with enough “capital flexibility†to make more acquisitions if it needs to. Speaking after the announcement, Duncan Potter, VP of Marketing at ARRIS, pointed to what he considers are “compelling financials†for this deal. He also said there was little overlap in products between the two companies, if you take into account the market segments (e.g. satellite or cable, etc.) that they are aimed at.
Potter noted that there was not much customer overlap if you look outside of the US market and he emphasized the “huge opportunity in the rapidly changing satellite market†and pointed to Latin America as an example of a fast-growing television marketplace where both ARRIS and Pace are established and which contains exciting opportunities.
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ARRIS And Charter Communications Join Forces To Acquire ActiveVideo
