Two of the biggest players in smart metering and smart city systems will be joining forces in a deal where Itron, Inc., Liberty Lake, WA, acquires Silver Spring Networks, Inc., San Jose, CA, a transaction valued at approximately $830 million.
Itron’s product portfolio includes electricity, gas, water and thermal energy measurement devices and control technology; communications systems; software; and management and consulting services. Silver Spring provides connectivity platforms and components for utilities and cities.
In the deal, which has been unanimously approved by the boards of directors of both companies, Itron will buy all outstanding shares of Silver Spring at $16.25 per share in cash, a premium of 25% over Silver Spring’s closing share price on Sept. 15, 2017, the last trading day prior to the announcement of the transaction. Itron will pay for it with cash and $750 in incremental new debt, with underwriting from Wells Fargo and financial advice from Centerview Partners and Credit Suisse. Silver Spring is advised by Evercore.
“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,” said Philip Mezey, Itron’s president and chief executive officer. “By converging our complementary, standards-based technologies, we will enhance customer efficiencies with solutions that optimize devices, network technologies, outcomes and analytics. This enables us to increase investment in new solutions and accelerate innovation for our combined customer base, covering more than 200 million people.
“This transaction also increases our presence in the sizable industrial IoT segment, driving higher growth with recurring revenues and enabling Itron to increase profitability beyond our mid-teens EBITDA margin target,” continued Mezey. “Combining Silver Spring’s entrepreneurial culture and proven capabilities with Itron’s operational strengths, depth of solutions and customer intimacy will result in a company that is well-positioned in the fast growing critical infrastructure space. We look forward to welcoming Silver Spring’s talented team of engineers and professionals to Itron and are confident that together, we are best equipped to provide industry-leading solutions that will deliver greater value to our customers.”
Silver Spring and Itron together cover over half of the automated metering installations in the U.S. market, outpacing Landis+Gyr’s roughly 20% market share, according to GTM Research. The addition of Silver Spring will make Itron the second-largest globally behind Landis+Gyr, which spun off from Toshiba in a $2.4 billion IPO in August.
In 2016, Silver Spring generated revenues of $311 million with a gross margin of 44% and ended the year with $1.2 billion of backlog. With its global footprint in the smart utility and smart city sectors, Silver Spring generated more than 20% of its revenues through its managed services and SaaS solutions, an area of strategic focus for Itron. To date, Silver Spring has delivered more than 26.7 million network-enabled devices across five continents, the release said.
Itron anticipates approximately $50 million in annualized cost synergies over the first three years after the acquisition by optimizing combined operations and expenses.
“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,” Mike Bell, president and chief executive officer of Silver Spring Networks, said in the release. “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.”