Adding another breaker to the waves of recent M&A moves that have crashed into the video and pay-TV software and infrastructure market, Enghouse has agreed to splash out Can$56.5 million (US$42.16 million) for Espial Group.
Enghouse and Espial, both headquartered in Canada, didn't explain the strategic benefit of the proposed deal in much detail, and Enghouse has yet to respond to questions about the acquisition, announced Monday (March 25). However, some additional light on the deal could be shed this afternoon, when Enghouse chairman and CEO Stephen Sadler speaks at the Scotiabank Global Banking and Markets event in Toronto.
The acquisition will push Enghouse, a software and service company focused on areas including number portability, network platforms and cloud-based service delivery, into a tough pay-TV and multiscreen video marketplace. (See Smaller Cablecos Fleeing Legacy Pay-TV and Pay-TV Model Must Be 'Blown Up'.)
Espial, which enhanced its positioning in the video tech market in 2016 via the acquisition of Arris's Whole Home Solution, has more than 50 customers worldwide, comprising large, midsized and small cable MSO and service provider customers. Examples include Tele Columbus, Orange, Altice, Shaw Communications, TDS, Com Hem, Vodafone, Buckeye Broadband, WideOpenWest, Conway Corp., Inter Mountain Cable, Hiawatha Broadband Communications, Videotron, and Consolidated Communications. (See Arris Ends Dream of Set-Top Software Riches and Espial Boots Up Managed Android TV Offering.)
Espial's software supports both operator-supplied boxes and various retail streaming devices, and has enabled its platform to integrate OTT services such as YouTube and Netflix. Espial says its customers have deployed more than 50 million devices collectively.
From a revenue standpoint, Espial's business is not massive… and it has been shrinking. In Q4 2018, the company posted revenues of C$6.7 million ($5 million), down from C$10.15 million ($7.84 million) a year earlier, though annual recurring software-as-a-service-related revenue jumped 81%, to C$7.5 million ($5.6 million). Espial ended 2018 with cash and cash equivalents of C$33.40 million ($24.94 million), and this financial overview (PDF) from November 2018 showed that Espial had no debt.
Under the deal, Espial shareholders will get C$1.57 ($1.17) for each Espial share held. Enghouse said the deal represents a 39% premium to the closing price of Espial shares on the Toronto exchange on March 22, 2019, and a 35% premium to the average price of those shares over the past 30 trading days. Espial shares surged 37.17%, to C$1.55 ($1.16) Monday on news of the deal. (See Enghouse to Acquire Espial for C$56.5M.)
The companies said Espial's board has unanimously approved the deal and have recommended that shareholders greenlight the offer. Board approval followed the direction of an independent committee of Espial board directors comprising Neil McDonnell, Aamir Hussain, Michael Lee and Peter Seeligsohn that considered the proposal and obtained a "Fairness Opinion" on it from Paradigm Capital.
A special meeting of Espial shareholders to consider the proposal will be held in May. Espial and Enghouse expect the deal to close in the second half of 2019.
If the deal goes through, it will represent the latest in a string of recent M&A activity involving video software and hardware players focused on the pay-TV sector.
Among examples, TiVo, another player focused on the market, is conducting a strategic review that could lead to it splitting into two pieces -- intellectual property/licensing and products. Synamedia was spawned via the acquisition of Cisco Systems's video software business. Ericsson-backed MediaKind is now majority owned by One Equity Partners. It's also been speculated that CommScope will attempt to sell Arris's set-top business following its merger. (See MediaKind Tries to Do More With Mediaroom, CommScope Still Hazy on Arris's CPE Biz, TiVo Preparing to Separate Its Products & Licensing Businesses and Bye Bye Cisco Video Software, Hello Synamedia.)
— Jeff Baumgartner, Senior Editor, Light Reading