On Monday, Itron (ITRI - Free Report) and Silver Spring Networks announced that Itron is set to acquire the Internet of Things company for a 25% premium. The news sent shares of both companies to new 52-week highs.
Itron agreed to pay $16.25 per share in cash to acquire Silver Spring, which values the transaction at roughly $830 million. Both companies’ boards unanimously approved the deal.
Shares of Silver Spring skyrocketed over 24% on Monday to hit a new 52-week intraday trading high of $16.18 a share. Itron stock popped 1.5% and also touched a 52-week high water mark.
Itron, an energy resource company that uses technology to help municipalities look for inefficiencies, is set to pay for the Silver Spring deal with cash and $750 million in new debt. The merger is expected to officially close at the end of the year, or in early 2018.
The deal marks a major merger in the Internet of Things ecosystem, as both companies focus heavily on internet-connected devices and solutions to help create highly efficient markets, services, and products. These two companies will come together in order to create a smarter product environment for their customers, with a heavy focus on energy efficiency.
One of Itron’s biggest goals is to help create highly effective, non-wasteful “Smart Cities” through the use of technology and, in particular, the Internet of Things.
“The addition of Silver Spring brings more capabilities to our offerings and advances our strategy of delivering highly secure, value-generating solutions for the critical infrastructure within utilities, smart cities and the broader industrial IoT sector,” Itron CEO Philip Mezey said in a statement.
Silver Spring is an Internet of Things company that also works in the energy optimization sector. The San Jose, California-headquartered firm boasts that it is an “Internet of Important Things” platform and solution, which includes everything from software and services to maintenance and security.
Silver Spring reported revenues of $311 million and a 44% gross margin in 2016. The company has sold more than 26.7 million internet and network-enabled devices around the world.
"Joining forces with Itron will enable us to help more utilities and cities adopt the industrial Internet, improve their performance and reliability, and better position themselves for a connected future,” Silver Springs chief executive Mike Bell said in a statement.
“This strong combination will address end-to-end solutions for our customers and will create immediate value for our stockholders; it will also provide new opportunities for our employees as part of a larger, global technology leader for the Internet of Important Things."
Itron expects that the deal will be accretive to its gross margin in the first year and accretive to non-GAAP EPS in the following year. The energy efficiency firm also projects that the Silver Spring merger will create around $50 million in annualized cost synergies over the next three years.
A shareholder rights law firm already started an investigation to see if Silver Spring’s board broke their fiduciary duties by accepting this deal. The law firm cited a $19 a share Wall Street price target—which is almost $3 more than they agreed to be sold for—and noted that the company has no long-term debt as the biggest reasons for the possible shareholder rights lawsuit.
“Smart Cities” and energy efficiency will prove to be a major piece of the IoT market. For more on the IoT market, including insight into another potential application for the technology, check out:
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