Companies’ combined 2016 revenue was approximately $680 million and EBITDA was $50 million
Sonus Networks, a provider of secure cloud and real time communications, and Genband, a provider of carrier and enterprise network transformation and real time communications solutions, are set to merge.
The pair announced a definitive agreement under which the two companies will combine to create a next generation communications networking provider. Sonus and Genband shareholders will each own approximately 50% of the combined company. Based on the closing price of Sonus’ common stock on 22 May 2017 of $7.79 and estimated net cash at the time of closing, the transaction values the combined company at an enterprise value of approximately $745 million.
The transaction combines Sonus’ software-based position in real time communication virtualisation, cloud-based session initiation protocol (SIP) and 4G plus voice over LTE solutions and security initiatives, with Genband’s network modernisation, unified communications, and mobility and embedded communications solutions.
Together the companies claimed they will be better positioned to enable network transformations to IP and cloud-based networks for communication service providers and enterprise customers worldwide, with a broader and deeper global sales footprint, increased ability to invest in growth, more efficient and effective R&D, and a comprehensive real time communications product offering.
The two companies’ combined 2016 revenue and EBITDA would have been approximately $680 million and $50 million, (Sonus and Genband respectively), on a combined basis which excludes synergies and is prior to any impact from purchase accounting. The transaction is expected to be substantially accretive to Sonus’ earnings per share in 2018.
The combined company is expected to realise annual cost synergies of $40 million to $50 million by the end of 2018 and to drive solid cash flow from operations in the first year after closing. Following the full impact of expected annualised synergies, the combined company is expected to generate at least $100 million in annual EBITDA, with fiscal year 2020 EBITDA projected to be approximately $140 million.
Under the terms of the agreement, Sonus and Genband will combine under a newly formed holding company. Each Sonus shareholder will receive one share of common stock in the combined company for each existing Sonus share they own. The combined company will issue approximately 50 million shares of common stock to Genband’s equity owners as well as $22.5 million of consideration in the form of an unsecured note.
Upon closing of the transaction, Sonus and Genband shareholders are each expected to own approximately 50% of the combined company on a fully diluted basis. The combined company will have an estimated net cash position of $40 million to $45 million at the time of close, which is expected to increase meaningfully in fiscal 2018 as the company realises synergies.
“Together, Sonus and Genband create a market leader in real time communications with enhanced capabilities to support our customers’ move to cloud-based solutions,” said Raymond Dolan, president and chief executive officer at Sonus. “The transaction is expected to generate significant near and long term value for shareholders, who we believe will benefit from their ownership in a combined company with increased scale and resources to invest in and accelerate each company’s growth initiatives. This is a strategically and financially compelling transaction for Sonus and we are confident that together with Genband we will achieve our growth initiatives faster and more fully than either company could do on its own.”
David Walsh, CEO and chairman at Genband, said: “We are delighted to combine with Sonus at a time when the world’s largest service providers and enterprises accelerate the modernisation and transformation of their networks. Like Sonus, Genband has transitioned its business to support this industry shift and we have seen improving profitability over the last couple of years and into 2017. With this combination, we believe our complementary product portfolios and expanded global footprint will allow us to even better respond to the evolving needs of customers. Our heritage and culture fit perfectly together and the combined talent going forward is second to none. This is truly an ideal combination.”
The transaction has been unanimously approved by the Boards of Directors of both companies, and is expected to close in the second half of 2017, subject to Sonus and Genband shareholder approval, listing of the combined company’s common stock on Nasdaq, Hart-Scott-Rodino review, and other customary closing conditions.
The CEO of the combined company will be Dolan, while Walsh will oversee the Kandy business, a division of the combined company and currently Genband’s cloud communications platform as a service (CPaaS) for global service providers and enterprises. Walsh will also assist with the integration of the businesses.