Broadband facilitator NetComm Wireless (ASX: NTC) is set to be snapped up by US company Casa Systems for $161 million, with the combined entity seeking to meet the growing demand for increased bandwidth from global communications service providers.
The Sydney-headquartered firm released a suite of good news to the market today, which included management changes and its half-year results for the 2019 financial year.
However, the major announcement concerned the recommended transaction for Nasdaq-listed Casa Systems to acquire NetComm after the pair entered into a definitive agreement.
Under the scheme, NetComm shareholders will receive $1.10 a share, resulting in NetComm becoming a wholly owned-subsidiary of Casa Systems.
The all-cash offer places a $165 million valuation on NetComm, with the offer price representing a 52.8% premium on the company’s mid-week closing price of $0.72 per share.
Subject to a superior proposal, NetComm’s directors have urged shareholders to vote in favour of the “compelling offer”.
“At a significant premium to the current trading price, Casa Systems’ offer provides NetComm shareholders with certainty of value and the opportunity to realise their investment in full for cash,” NetComm chairman Justin Milne said.
“The price is a very tangible measure of the value and quality of NetComm’s telecommunications technology solutions, our position in the global telecommunications industry, and our recent strong performance developing unique 4G and 5G solutions, winning and retaining key contracts.”
Casa Systems chairman and chief executive officer Jerry Guo heralded the transaction as one that would create a “global leader in the rapidly growing broadband enablement space for service providers across all access technologies”.
“With complementary product portfolios, the combination of Casa Systems and NetComm strengthens our ability to meet the growing demand for increased bandwidth by communications service providers around the world,” he said.
Conditional on shareholder and court approvals being met, the deal is expected to be finalised in June 2019.
NetComm has an operational history of 35 years and maintains offices in the US, UK and New Zealand. Last April, it announced a major broadband services deal with Canada’s largest communications company, Bell Canada.
Global growth strategy underpins revenue growth
The deal comes as NetComm posted revenue of $93.4 million for the six months to the end of December 2018, marking a 6.5% improvement on the previous corresponding period.
The company’s telecommunication infrastructure equipment and Industrial Internet of Things (IIoT) was a standout performer, achieving 11% revenue growth to $83.6 million.
NetComm attributed the overall revenue increase to a scaling of Network Connection Device (NCD) orders from NBN and sales of fixed wireless devices to telecommunications carriers across the globe.
Despite the jump in revenue, overall net profit after tax fell from $3.7 million to $2.3 million while earnings before interest, tax, depreciation, and amortisation (EBITDA) totalled $8.3 million, compared to $9.2 million.
NetComm attributed the decline in EBITDA to a change in its sales mix as well as higher operating expenses in part related to developing its 5G capabilities.
The company closed 2018 with zero debt and $17.4 million cash in the bank.
Changes at the helm
In other company news, Ken Sheridan will step aside as NetComm’s managing director and chief executive officer as of today, citing family health issues.
Mr Sheridan will continue to be involved with NetComm in the capacity of executive director.
During the eight years Mr Sheridan spent within the company’s senior management team, NetComm’s revenue has grown from $97.6 million to more than $180 million.
Steve Collins, the company’s chief technology officer, has been appointed interim chief executive officer while the company undertakes a formal selection process, considering both internal and external candidates.
Looking ahead, Mr Collins said he expects the NCD sales to NBN to remain strong in the second-half of FY19.
“The combination of our current contracts and multiple global 4G /5G fixed wireless and DPU opportunities will flow through to strong revenue and earnings in future periods,” he added.
NetComm’s FY19 EBITDA guidance remains unchanged at $15-$19 million.
Investors welcomed NetComm’s impending takeover by Casa Systems, with the company’s shares soaring 47.1% at midday to $1.045.