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Itron to Acquire Silver Spring Networks in Smart Grid/Smart City Mega-Merger

The long rivalry between Itron and Silver Spring Networks, the country’s two major smart meter and grid networking players, is ending in marriage.

On Monday, Itron announced plans to acquire all outstanding shares of Silver Spring for $16.25 per share in cash, a premium of 25 percent from Friday’s close, in a transaction valued at $830 million, excluding $180 million in Silver Spring cash.

Itron is funding the deal, fully underwritten by Wells Fargo, with cash and $750 million in incremental debt. Centerview Partners and Credit Suisse are the financial advisers to Itron, while Evercore is the financial adviser to Silver Spring.

The deal has been unanimously approved by both companies’ boards of directors, but still requires Silver Spring stockholder approval and federal approval to move forward. When those approvals are in place, the deal is expected to close late this year or in early 2018. The offered price does represent a high premium over Silver Spring’s current value, although it is in line with other technology merger and acquisition offers.

Monday’s surprise merger would create a company with more than 90 million smart endpoints deployed with some of the world’s biggest utilities. That would put it in second place behind Landis+Gyr, the century-old Swiss metering company that recently spun itself out from parent company Toshiba in a $2.4 billion initial public offering.

In North America, Silver Spring and Itron together cover over half of known installed and contracted AMI endpoints, outpacing Landis+ Gyr’s roughly 20 percent of market share, GTM Research grid edge research associate Paulina Tarrant noted. Globally, however, L+G has the largest AMI network, although a post-merger Itron would come in a close second, she said.
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The two remaining major AMI vendors are Germany’s Elster, acquired by Honeywell for $5 billion in 2015, and U.S.-based Sensus, bought by water treatment company Xylem for $1.7 billion last year.

Both Itron and Silver Spring have seen their ups and downs in recent years, facing significant restructuring and layoffs, while revamping their technology to become something far more like an industrial wireless internet than the radios-and-receivers smart meters of previous decades.

Silver Spring reported a GAAP loss of $21.6 million on revenues of $311 million for fiscal year 2016, and ended the year with $1.2 billion of backlog. Itron reported second-quarter 2017 earnings of $503 million and non-GAAP earnings per share of 71 cents, with about $1.6 billion in backlog.

As for the rationale behind the merger, Itron highlighted the opportunities for both companies to tackle the “sizable industrial IoT segment, driving higher growth with recurring revenues and enabling Itron to increase profitability beyond our mid-teens EBITDA margin target.”

While smart meters are a part of this industrial IoT landscape, they’re only one of a growing number of devices to be connected, from utility-operated distribution grid sensors and streetlights, to solar inverters and electric-vehicle chargers on the customer side of the meter, and beyond to the broader world of “smart city” networks.

The IoT opportunity is still years away from commercial-scale replication, but the scope is far greater than the traditional utility segments both Itron and Silver Spring serve. A recent McKinsey report found that IoT could yield a global economic benefit of $3.9 trillion to $11.1 trillion a year by 2025. Itron’s own figures show the IoT opportunity growing to about $420 billion by decade’s end, compared to $20 billion for smart grid.