Image source: Aviat Networks
Aviat Networks ( Chart AVNW - $34.46 0.18 (0.525%) ) announced Thursday that it would acquire Redline Communications (Toronto: RDL) for an all-cash transaction valued at approximately C$16.2 million (US$12.9 million), or C$0.90 per common share.
Toronto-based Redline builds wide-area wireless networks for oil and gas companies, mining companies and other mission-critical applications in challenging locations.
Aviat is a global provider of wireless transport products and services for 5G, rural broadband and private networks. The company, based in Austin, Texas, is the leading rural broadband provider in the US.
"The acquisition expands Aviat's share in private networks by adding Redline's wireless network access capabilities in industrial PTP/PTMP and licensed Private LTE and 5G to Aviat's existing wireless transport backhaul solutions," said Aviat CEO Pete Smith.
"Redline products will leverage Aviat's sales and marketing presence for broader reach. Likewise, Aviat will benefit from Redline's presence in the oil and gas and transportation verticals."
Though it's only a small acquisition, we see immediate benefits for Aviat. Redline presents a smooth entry for Aviat to tap the $8 billion private LTE/5G addressable market, and the deal should be accretive to Aviat in the first year.
Investment thesis
Aviat stock popped 11% on Thursday after the news, closing at $34.06, a level not seen since October 2021.
Even after the sharp one-day rally, Aviat's market cap is a modest $381 million, which feels light given the company's market position and growth prospects.
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The markets for 5G, mission-critical communications, rural broadband and emerging economies are enormous.
- After this acquisition, add in the private LTE/5G market.
- Company is the leading provider of rural broadband in the US with 38% market share.
- Aviat offers the industry’s highest capacity, highest power wireless transport devices for lowest total cost of ownership.
- High-margin SaaS model, including the industry's only interference monitoring software for microwave.
- 42 million Americans still have no access to high speed internet.
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Historical NOLs of $530 million reduce Aviat's tax rate from the statutory 24% to an effective 4%.
- NOLs expected to deliver at least $6 million in cash tax savings in fiscal 2022 and for at least another five years.
- The company expects the Redline acquisition to be accretive to gross margin, adjusted EBITDA and free cash flow in the first year.
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Source: Equities News
