Semtech To Acquire AptoVision Technologies For Up To $75 Million

Summary

• Chip maker Semtech has agreed to acquire AptoVision Technologies for up to $75 million in cash consideration.
• AptoVision has developed audio-visual chipsets and algorithms that reduce the need for proprietary AV matrix switches and enable greater video transport flexibility.
• The deal, when combined with Semtech's existing video chip expertise, gives the firm a chance to pursue a change in the professional AV market by reducing costs without compromising quality.

Quick Take

Semiconductor technology company Semtech (NASDAQ:SMTC) has announced an agreement to acquire AptoVision Technologies for up to $75 million in upfront and contingent cash consideration.

AptoVision has developed advanced chipsets and related algorithms that reduces video transport cost while offering zero-frame latency, uncompressed 4K streaming capabilities.

Semtech wants to combine its chip development expertise with AptoVision’s technology to accelerate a change away from proprietary AV matrix switches.

Target Company

St. Laurent, Canada-based AptoVision was founded in 2011 to create zero-frame latency video solutions for the professional audio-visual market.

Management is headed by co-founder and CEO Kamran Ahmed, who was previously Director of International Sales at Magenta Research.

Below is a brief demo video about AptoVision’s BlueRiver NT+ system:

(Source: rAVE Publications)

AptoVision has a four-part line of software-defined chipset products:

• BlueRiver NT+
• BlueRiver NT
• BlueRiver 400
• BlueRiver 200

AptoVision’s products are aimed at the professional, broadcast quality market and the company also provides an API for developers to create their own applications.

Acquisition Terms and Rationale

Semtech is paying $28 million up front cash and up to an additional $47 million in cash based upon the achievement of certain future financial milestones.

As of April 30, 2017, per Semtech’s most recent 10-Q filing, the firm had $281.6 million of cash and equivalents and total liabilities of $377.7 million.

Management said it would pay for the deal with cash on hand so that no additional debt will be incurred in the purchase. The company generated $10.4 million in CFFO (Cash Flow From Operations) in the most recent quarter, so appears to have ample resources to pay for the acquisition.

Semtech described the acquisition’s financial impacts as follows,

Semtech does not expect the acquisition to have any material impact to the financial outlook for its second quarter of fiscal year 2018 that was provided on May 31, 2017. The Company expects the deal to be neutral to its fiscal year 2018 non-GAAP earnings and to be accretive to its fiscal year 2019 non-GAAP earnings.

So, the announcement focused on ‘non-GAAP’ is all too typical for management teams trying to make the deal sound better than the GAAP numbers would indicate.

Semtech is acquiring AptoVision for its HD and UHD (Ultra High Definition) BlueRiver technology.

AptoVision’s capabilities satisfy growing demand from various public venues for ‘flexible software-defined AV that can be carried over low-cost IP networks without compression or latency which is critical to support these applications.’

The main applications are for security as in the case of rail stations, airports, and other places where large numbers of people congregate and for corporate environments such as retail, academia and sports venues for security and event video transmission.

Semtech aims to combine AptoVision’s technology with its capabilities to pursue Software Defined Video over Ethernet [SDVoE].

As the company stated in the deal announcement,

The unique combination of AptoVision’s advanced algorithms for real-time, full bandwidth video transmission over IP networks, and Semtech’s industry leading high-speed signal integrity and chip development expertise is expected to enable SDVoE to accelerate this natural progression in the evolution of video transport.

Earlier in 2017, AptoVision formed an SDVoE Alliance with the goal of standardizing a set of protocols to increase the adoption of AV transport over Ethernet, and to ‘create an ecosystem around SDVoE technology that allows software to define AV applications.’

Semtech, which already provides a range of semiconductor products to the video broadcasting and security industries, sees in AptoVision the opportunity to take advantage of its advanced algorithms to enable real-time, uncompressed video transmission over low-cost IP networks.

It wants to combine its chip development capabilities with AptoVision to accelerate the progression of SDVoE adoption as video transport evolves to a more flexible, lower-cost and higher transport paradigm.

The move makes sense for Semtech, as it doesn’t appear to be overpaying for a set of assets that will increase its value propositions to the professional AV industry in flux.

The combination should be beneficial to Semtech in the medium-term, assuming the industry continues to share its vision of the future of professional AV.

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