Machine-to-machine communications company Telit Communications (LON:TCM) has bought wireless connectivity specialist GlobalConect for US$2.9 million.
The deal will enable Telit to offer wireless connectivity, further strengthening its proposition to its customers. Analysts welcomed the deal, with both Northland Capital Partners and house broker Investec securities rating the firm’s shares as a ‘buy’.
Around US$700,000 of the acquisition costs will be met in cash, while 800,000 shares are being issued at 170 pence each.
Telit said it could issue more shares depending on the performance of GlobalConect, and the share price – particularly if it fails to hit 170 pence.
Machine-to-machine (M2M) communications is used in a variety of industrial and business fields to improve productivity. For example, in remote production environments they help to reduce the need for a human being to be on site all of the time, while vehicles with the capability can automatically notify service centres of maintenance issues. Another good example is of vending machines that can report to central warehouses when they are running low on stock.
Telit chief executive Oozi Cats said: "Adding wireless connectivity to our offering is an important factor for Telit's continued growth and success.
“Our customers expect superior M2M solutions from one source and with the acquisition of GlobalConect we will now be in a position to address their needs more comprehensively."
GlobalConect founder Dan Amir will stay on as Telit’s head of connectivity activities.
He added: “I am excited about the move to Telit. We have an opportunity to leverage our activity within Telit's global customer base to contribute significantly to building Telit's service offering."
Telit is a specialist in the field of wireless machine-to-machine communications (M2M).
Put simply M2M enables one machine to talk to another machine via a wireless network.
Telit is the only pure play M2M company listed in London and one of the market’s big three players.
Earlier this month a study by Beecham Research, a consultant specialising in the M2M market, said Telit's market share of the ‘modules’ market over 2010 rose from 12.4 percent in 2009 to 16.1 percent in 2010.
If Telit’s acquisition of Motorola’s M2M unit earlier this year is included in Beecham’s analysis, Telit’s share of the global industrial grade m2m modules market jumps to 22.2 percent on a pro forma basis.
Northland analyst, David Johnson, said: “There is scope for additional high margin and high visibility downstream revenue from value added services such as connectivity with Telit offering tailored data packages. This acquisition represents a building block as Telit will be able to offer customers wireless connectivity. We maintain our 'buy' rating and 125 pence price target.”
Investec said: “This deal is an interesting extension of the current M2M business model, with potential revenue acceleration if Telit is able to create a fully integrated offering, including billing and CRM [customer relationship management]. We have upgraded our [2012 financial year] revenues marginally [up US$400,000] but the deal is earnings neutral.”
The broker added that at 10.5 times price-to-earnings for 2012, “the opportunity in M2M remains undervalued” and that it was maintaining its ‘buy’ recommendation.
Shares in Telit remained unchanged at 91 pence this morning.