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Case Studies

Peter A. Sokoloff & Co. regularly analyzes transactions which occur within the industries covered. An archive of these case studies is kept online as a courtesy to our colleagues. To receive by e-mail new case studies as they are prepared, please e-mail bwalko@sokoloffco.com with your contact information.

Archives > Transaction Case Study 65

SOKOLOFF & COMPANY CASE STUDY
Motorola Solutions, Inc. (NYSE: MSI) to acquire Psion Plc. (LSE: PON)

DATE ANNOUNCED:  June 15, 2012
BUYER:  Motorola Solutions, Inc. (NYSE: MSI)                     
SELLER:  Psion Plc. (LSE: PON)    
PURCHASE PRICE:  $200 Million
FORM OF PURCHASE PRICE:  Cash at 88 pence (US $1.36) a share

SELLER’S FINANCIAL INFORMATION AND M&A MULTIPLES

Year 2009 2010 Trailing Twelve Months
Year Ending
December 31, 2011

Revenue

$266.9M

$273.9M

$276.3M

EBITDA

$3.06

$16.6M

$18.7M

Cash

 

 

$39.6M

Debt

 

 

$4.2M

Purchase Price

 

 

$200M

Enterprise Value

 

 

$156.1M

Multiple of Revenue

 

 

.59

Multiple of EBITDA

 

 

8.78

TRANSACTION DRIVERS:
Greg Brown, chairman and CEO of Motorola Solutions, said: “Psion is a compelling opportunity to strengthen our industry-leading, mobile-computing portfolio with ruggedized handheld products and vehicle-mount terminals that will deepen our presence in the global markets in which we compete.”

John Hawkins, chairman of Psion said “the directors are pleased to unanimously recommend this offer by Motorola Solutions at a price which offers a significant cash premium to both the current and recent market prices.  The offer by Motorola Solutions provides Psion's shareholders with certainty in an environment where certainty is in short supply."

SOKOLOFF COMMENTARY:
We can’t resist contrasting the Psion transaction with Siemen’s recent acquisition of RuggedCom, Inc. (See Sokoloff Case Study).  Both companies manufacture hardened electronics for harsh environments.  Psion has a strong portfolio of mobile computing products; RuggedCom provides network solutions that include network routers, Ethernet switches and professional services. 

So why is Psion, which has twice the revenues of RuggedCom, selling for less than 40% of what Siemens paid for RuggedCom?

Two words – growth and margins.  Psion’s revenues have been nearly flat for the last three years.  RuggedCom has a five year CAGR 0f 39% (29% in 2011).  Psion principally sells via resellers and integrators; the necessity of a middle man in the sales channel drives a lower Gross Profit Margin of 38.2%.  RuggedCom has a direct to customer approach which supports a GPM of 58%-60%.

The contrast in valuation is symbolic of a tidal shift in business paradigms.   In the age of the Internet and the resulting dissolution of old school purchasing relationships, more and more manufacturers are pursuing paths to sell directly to the end-user.  Larger players like Siemens and Motorola are well along this path of direct sales, often to the detriment of long time reseller/integrator partners.  Smaller companies, in need of market coverage and entrée to larger corporate customers, often build their businesses around a partner network, only to realize late in the game that partners are fickle and may not have the same interests.

Generally, a manufacturer who is dependent on a few large reseller partners is destined to see its GPMs fade and its sales growth impacted by conditions outside of their control.   Thus, we tell the tale today of two companies… one commanding market-busting multiples, the other accepting of a more common exit.

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