Finance

Pace CEO: Expect More M&A

Set-Top Maker Will Pursue More Deals, Seek More Diversity, Following Aurora Networks Buy 10/24/2013 4:53 AM Eastern

ATLANTA – SCTE Cable-Tec Expo 2013 -- Pace plc is starting to look a little bit more like two of its larger rivals, Arris and Cisco, after striking a $310 million deal to acquire cable access gear vendor Aurora Networks, but the U.K. set-top maker’s will be seeking out more M&A opportunities as it looks to further diversify its business.

“If we see [an M&A target] we like and it meets our financial criteria, we will go out and do it,” Pace CEO Mike Pulli said here in an interview at the company’s booth, noting that the company will be on the look out for other ways to match its core set-top business with other products that reach into the home and out on the broadband access network.

Pace’s renewed path of attack comes almost a year after the company dropped out of the bidding for Motorola Home, which was sold to Arris in April for $2.35 billion.

Pulli didn’t identify any specific targets, but said Pace could look to expand its software and services business, which has been pushed along by its previous acquisitions of 2Wire, a home gateway maker, and Latens Systems, a supplier of conditional access and digital rights management products. “We would like to continue growing that part of the business,” Pulli said.

And he admits that Aurora would have been an unlikely M&A target if he was asked to pull together a top 10 list last year. But he said he had heard great things about the company, and subsequent visits with the company and its management quickly determined that the two companies made a good match.

Aurora has about 350 employees, mostly engineers. Pulli expects most of them to stay with Pace, but noted that his company will need to identify corporate duplication during the integration process. If Pace secures all its approvals on time, the deal should be closed by the end of 2013, Pulli said.

One analyst cheered the deal and Pace’s attempt to diversify its potfolio and become a more well-rounded supplier.

“The combination of the two companies results in a vendor with a fairly comprehensive cable equipment portfolio, which now comprises approximately 6% of the total $12.5 billion cable equipment market,” Raymond James analyst Simon Leopold wrote in a research note issued Wednesday. “While this is still a fairly small portion of the market compared to the duopoly of Cisco and Motorola/Arris who control 21% and 33%, respectively, we believe that the acquisition does create some incremental pressure on the competitive dynamics of the market and could be a negative for Cisco and Arris.”

While Leopold doesn’t see a Pace/Aurora combo as an “immediate threat to Cisco and Arris' duopoly in the near term, we believe that cable operators continue to encourage and welcome competition, and with a more comprehensive product offering from Pace, they can consider purchasing equipment outside of the Big 2.”

September