Itron (ITRI 72.80) isn't a household name, but with the news this morning that it will be buying Silver Spring Networks (SSNI 13.00) for approximately $830 million, net of Silver Spring's cash, it could soon play a role in more households than meets the eye if shareholders and regulators approve the transaction.
Silver Spring provides Internet of Important Things connectivity platforms and solutions to utilities and cities. The company has delivered more than 26.7 million smart devices that help cities, utilities, and companies operate more efficiently.
The company will be a nice complement to Itron, which provides comprehensive solutions that measure, manage, and analyze energy and water.
With Silver Spring, Itron is acquiring a higher-margin business. In 2016 Silver Spring generated $311 million in revenue with a gross margin of 44.0%. Itron for its part generated $2.0 billion in revenue with a gross margin of 32.8%.
That is one reason why Itron is paying a sizable premium to acquire Silver Spring, whose shareholders will receive $16.25 per share in cash, which is a 25% premium over Friday's closing price.
Other factors fueling Itron's interest in Silver Spring include its ability to tap into a larger partner ecosystem, enhanced value-added services, accelerated innovation, and potential annualized cost synergies that Itron expects to be approximately $50 million within three years of completing the transaction.
Notably, Itron believes this deal will have a positive impact on its long-term growth rate, be accretive to gross margin in the first year, and be accretive to non-GAAP EPS and adjusted EBITDA margin in year two, excluding one-time, transaction-related costs.
The deal is anticipated to close in late 2017 or early 2018.