Avtec operates as a voice over Internet Protocol [VoIP] dispatch software solutions provider for public safety and commercial uses.
With the deal, MSI is bringing in-house a software system that will enable it to provide integrated solutions for mission-critical communications between Internet-based and land mobile radio networks.
Lexington, South Carolina-based Avtec was founded in 1979 to provide VoIP dispatch software through land mobile radio and broadband networks.
Management is headed by CEO Michael Branning, who has been with the firm since 1986 and was previously Board Member of APX Building + Onsite Data Solutions.
Below is an overview video of the company:
Avtec’s primary offerings include:
- Scout Enterprise
- Scout Select
Company partners include:
Market And Competition
According to a market research report by Markets and Markets, the global computer-aided dispatch communications market was valued at $1.12 billion in 2017 and is projected to reach $1.95 billion by 2022.
This represents a CAGR of 11.8% between 2017 and 2022, nearly doubling in forecasted size.
The main drivers for this expected growth are the adoption of connected devices as well as a rising prevalence of natural disasters and criminal activities.
Major competitive vendors that provide computer-aided dispatch solutions include:
- Caliber Public Safety
- TriTech Software Systems
- Hexagon Safety & Infrastructure
- Spillman Technologies
- Priority Dispatch
Acquisition Terms And Rationale
MSI didn’t disclose the acquisition price or terms and didn’t file a Form 8-K or provide a change in financial guidance, so the acquisition was likely for a financially non-material amount.
A review of the firm’s most recent 10-K filing indicates that as of December 31, 2018, MSI had $1.2 billion in cash and equivalents and $10.7 billion in total liabilities, of which long-term debt represented $5.3 billion.
Free cash flow during the 12 months ended December 31, 2018, was $878 million.
MSI acquired Avtec to bring its VoIP dispatch solutions in-house rather than just be one of Avtec’s partners.
As John Kedzierski of MSI stated in the deal announcement:
Avtec expands our public safety and commercial portfolios, allowing us to offer an end-to-end platform for customers to communicate, coordinate resources and secure their facilities. As part of our portfolio, Avtec will continue to offer dispatch solutions for a number of radio network vendors so its customers and channel partners can maximize their integration options.
In the past 12 months, MSI’s stock price has risen 29.4% vs. the S&P 500 Index rise of 3.9%, as the chart below indicates:
MSI has a consistent history of positive earnings surprises, leading me to wonder if management isn’t managing the process specifically to generate positive surprises:
Source: Seeking Alpha
Analyst ratings run almost the entire gamut of opinions and the consensus price target of $141.31 implies only a 0.4% upside from the stock’s current price of $140.77 at press time:
Source: Seeking Alpha
Analyst sentiment in recent earnings calls has rolled over despite the stock rising during roughly the same time frame:
When a company acquires an existing partner, which Motorola is doing with Avtec, it usually means they want the technology to either deny it to competitors or to develop the technology in a way to provide advantages to its own systems.
While Motorola says that Avtec will continue to offer its solutions ‘for a number of radio network vendors,’ the wording certainly leaves open the notion that other vendors may not continue to use the system.
I suspect that Motorola has plans to evolve the Avtec system for its own purposes as it seeks to widen the market reach of an integrated system of software and hardware.
By providing customers and prospects with a single, integrated solution, Motorola may be recognizing that customers are facing increased complexity in their mission-critical communication needs and by providing an integrated solution, MSI will gain an advantage in the marketplace.
In any event, assuming Motorola didn’t overpay for Avtec’s technology, the deal should position it well in the market for integrated communications between Internet-based dispatch and land mobile radio systems.
I research IPOs and technology M&A deals.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.