ARRIS’s acquisition of Pace will create the world’s largest supplier of set-top box (STB), broadband gateway and cable TV technology, claims Daniel Simmons, director of connected home analysis at IHS Technology. Combined 2014 revenues of $7.9 billion make it twice the size of its nearest competitor, Cisco’s Service Provider Video business unit.
ARRIS Group, a company focusing on broadband media technology, announced last week that it will acquire Pace for aggregate stock and cash consideration of US$2.1 billion (£1.4 billion). The acquisition is expected to be accretive to ARRIS Non-GAAP earnings per share in the first 12 months following the acquisition.
The transaction will result in the formation of New ARRIS, which will be incorporated in the UK, and its operational and worldwide headquarters will be in Suwanee, USA. ARRIS chairman and CEO, Bob Stanzione will be New ARRIS chairman and CEO and the then-current ARRIS board of directors will serve as the New ARRIS board of directors.
“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. We believe this is a tremendous opportunity for ARRIS and our customers, employees, shareholders and partners around the world as we collaborate to invent the future,” said Stanzione. “We look forward to working with the talented and accomplished team at Pace.”
In his report, HIS Technology’s Simmons asserts that ‘Future growth for ARRIS critically depends on it expanding outside of the US, where its current growth opportunity is limited by a stagnating pay TV market. Pace will bring ARRIS an expansion of width and scale that would be difficult for it to achieve organically. Simmons cites a number of advantages Pace has over ARRIS: 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.
Pace’s STB and broadband gateway business slowed in 2014, Simmons reports, and there is a likelihood that we will see further consolidation in this sector in the near future. Simmons continues: ‘ARRIS’s largest opportunity will come from supplying the combined customer base of pay TV operators with products and solutions that help them succeed against competition from OTT video and television providers. It will also help them succeed against the competition from content creators looking to use OTT as a means of bypassing pay TV to go direct to consumer. These solutions will only partially include STBs and will place greater emphasis on network and cloud technologies as well as software designed to optimise the user experience. The need to include these elements in a modern TV platform will drive ARRIS and its competitors to make further acquisitions.’