M&A Alert - October 1, 2009
Cisco Agrees to Acquire Tandberg
Transaction Overview
On October 1, 2009, Cisco agreed to acquire Tandberg (OSLO: TAA) for $3b in cash.
Target Description
Tandberg ASA offers various telepresence and video conferencing products including HD video and personal video conferencing to mid market corporate customers. Tandberg also offers open–standard video network infrastructure products, such as video communication server, IP gateway series, content server, and IP video conference recording to help its customers manage its video conferencing efforts internally as well as extend their videoconferencing capabilities to suppliers and partners. Tandberg also offers multipoint control units as well as peripherals and accessories including HD camera, video switch and document camera. Direct competitors include Polycom and HP’s Halo videoconferencing products. Tandberg is based in Norway.
Buyer Description
Cisco is the dominant supplier of networking equipment and network management for IP-based networks. It offers routers and storage systems that allow delivery of mobile, data, voice, and video applications on fixed and mobile networks via digital set-top boxes, digital media products and wireless systems. It also offers switching systems that provide connectivity to end users via multiple workstations, IP phones, access points, and servers. Tandberg will be integrated to Cisco’s TelePresence unit (which offers HD life-sized conferencing technology), under the Emerging Technologies unit. John Chambers, CEO of Cisco, Ned Hooper, Chief Strategy Officer and SVP of Consumer Business and Marthin de Beer, SVP of Emerging Technologies were the executive sponsors of the acquisition. Founded in 1984, Cisco is based in San Jose.
Transaction Parameters
Cisco had begun talks to acquire Tandberg in July 2009. Tandberg is profitable with 1,500 global employees.
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| Consideration paid to shareholders | $3b in cash |
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| Purchase Price Multiples(1): | |
| LTM Revenue | 3.5x |
| LTM EBITDA | 14.5x |
| LTM Net Income | 24.5x |
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| Premium Paid: | |
| 1 day prior to announcement | 11% |
| 90 day average prior to announcement | 25% |
| July 15 (at beginning of acquisition talks) | 38% |
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Note: Data is sourced from Capital IQ and Company’s Press Releases. (1) LTM is as of 06/30/2009. LTM Revenue, EBITDA and Net Income were USD858mm, USD205mm and USD121mm respectively
Strategic Rationale
Cisco has been quite open about its intent to provide a full suite of products around video infrastructure and services. Tandberg fits solidly within that theme. Tandberg’s products and services complement Cisco’s Telepresence videoconferencing products, bolstering Cisco’s strategic position in the enterprise collaboration market that is valued as a $34B market opportunity. Tandberg’s focus on mid-market customers complements Cisco’s higher-end Telepresence customer base and its web-based low-end offering, Webex. Tandberg’s open-standard networking system also makes Cisco’s video services more interoperable with other collaborative networking products. Tandberg represents Cisco’s fourth acquisition of video enabling products and services after Scientific Atlanta in 2005 (at 2.6x revenue), Webex in 2007 (at 7.2x revenue), and Flip, a consumer camcorder maker in March 2009 (valued at $437mm in Cisco’s stock).
Architect Partners’ Observations
Cisco’s core networking equipment business is a big beneficiary of the proliferation of video over IP. As such, Cisco has looked for ways to spur adoption of video applications by businesses and consumers. What is particularly interesting about Cisco’s strategy is its demonstrated willingness to step beyond its core network infrastructure focus and actively offer application level products and services. Its first video oriented acquisition, Scientific Atlanta in 2005, represented a half step in this direction. Since then, Cisco purchased the web conferencing application/service, Webex, and even went so far as to buy a consumer electronics hardware vendor, Flip, earlier this year. We’ll be watching how this strategy works out for them over the next few years.