As reported in Globes.co.il: Nera’s operations in Latin America and Africa complement Ceragon’s position in Europe, Asia and North America.
Following today’s closing of the transaction, both companies’ assets and core competencies will be combined into a single integrated organization, product family and customer base.
Ceragon, led by CEO Ira Palti, said that the transaction accelerates its strategic plans, as the combination of the two companies achieves immediate scale and reach to enable Ceragon to successfully and fully capitalize on global opportunities. Nera’s operations in Latin America and Africa complement Ceragon’s position in Europe, Asia and North America.
The acquisition will be funded through a combination of cash on hand and approximately $35 million of bank debt. The transaction is expected to be accretive on a quarterly basis by the end of 2011. Ceragon is targeting a combined operating model for 2012 with gross margins similar to its current level, and operating profit of 10% based on a quarterly combined run rate revenue of about $150 million.
According to previous forecasts supplied by Ceragon, it should report growth of 35% for 2010, to revenue of $250 million. With the contribution of Nera, Ceragon expects quarterly revenue of $150 million, or $600 million for the year. At that level of revenue, Ceragon expects to maintain gross profitability at 35%, and to reach operating profitability of 10%, compared with a current 7.5% on a non-GAAP basis.
This will not be a simple task, given that Nera is a loss-making company. In the first three quarters of 2010, it had revenue of $177 million, and lost $14.5 million.
“Nera is a loss-making company with a low gross profit margin (about 22%), which is part of the reason that the price for it is low,” Palti explains. However, according to him, Nera is an easy company to turn around.
“2011 will be a transition year, and towards the end of the year, the acquisition will contribute to profits,” Palti says. At any event, he stresses, even before Nera contributes, Ceragon will remain a profitable company.
Ceragon currently employs about 700 people, 200 of them in Israel. They will be joined by Nera’s 800 employees.
“There are synergies, and we will have to make decisions about overlapping activities, but that isn’t the name of the game here,” Palti says. According to him, the overlap between the two companies is not great. “Therefore,” he says, “we will be able to run forward. The acquisition will enable us to grow in market share, to boost our presence in many places in the world, and provide better solutions.”
Eltek, traded on the Oslo Stock Exchange, is a strategic technology partner within power solutions and microwave radio transmission, through its three business units Eltek Valere, Nera Networks and Nera Telecommunications. The company had close to 3,330 employees in more than 50 countries at the end of 2009. Following the divestment of Nera Networks, Eltek will focus on its core business in telecom power and power electronics solutions for industrial applications and renewable markets such as solar power and electric vehicles.
Ceragon’s share price rose 4.6% to $14.24 yesterday on Nasdaq, giving a market cap of 497.45 million.