Pace has announced a proposed $475m acquisition of Silicon Valley’s 2Wire, in a move that will add telecom companies to the number-one set-top box maker’s existing cable and satellite customers in the US.
Pace going for a triple-play of industries to serve is another sign of the major strategic shifts taking place as different sectors converge on delivering content and services to consumers over the internet.
Earlier indications of this included Walmart buying Vudu‘s “over-the-top” internet video service, Sonic Solutions buying DivX , Sigma Designs acquiring CopperGate and Google TV bringing together Google, Intel, Sony, Logitech, Dish Network and Best Buy with a new vision of “smart TV”.
Pace’s move to acquire 2Wire will mean it has all bases covered in terms of serving the traditional industries as they compete against new internet rivals.
Pace said the addition of 2Wire would make it the number one provider of telco residential gateway devices in the US and the number three globally.
You won’t have seen 2Wire’s products in any stores. While the likes of Netgear and Cisco’s Linksys have sold consumers routers to set-up Wi-Fi networks in their homes, 2Wire has focused on providing its routers directly to telcos. They issue them to customers as they sign up for internet services.
2Wire’s “residential gateway” routers are becoming ever more sophisticated, with add-ons that can provide network storage, internet telephony and content services.
Cisco is understood to have considered an offer for the company in the past and China’s Huawei more recently, but the Pace deal makes more strategic sense.
AT&T is 2Wire’s biggest customer – its broadband gateways help to deliver AT&T’s U-verse services such as multiroom HD TV, high-speed broadband and telephony. AT&T also has a stake in the company, as part of a consortium of investors including Alcatel-Lucent, Telmex, Oak Investment Partners, Meritech Capital Partners, and Technology Crossover Ventures.
“This acquisition will strengthen our Americas business, extending Pace’s US market coverage with entry into the tier one telco market,” said Neil Gaydon, Pace chief executive, in a statement.
“2Wire’s software and gateway expertise will further drive development of our home entertainment convergence strategy.”
The deal is expected to close in the fourth quarter, subject to regulatory consents and Pace and 2Wire shareholder approval. 2Wire reported sales worth $667m last year and profits before tax of $29m. Pace expects the acquisition “to be earnings and cashflow enhancing …in the first full financial year of ownership”.
Pace also unveiled first-half earnings figures on Monday. The world’s biggest supplier of digital set top boxes said sales grew 21 per cent on a year ago to £635m and profits before tax were up 46 per cent at £45m.
