I Will Not Buy Shares Now, But Adesto's Deal Will Likely Close


  • Adesto is expected to close the acquisition in the third quarter of 2020, when shareholders will receive $12.55 in cash.
  • I don’t think the conditions will be an issue. The companies received the voting support of shareholders owning 3.1% of the total share count.
  • In my opinion, the buyer appreciated the number of customers and its growing TAM. Dialog needs this acquisition to reduce its customer concentration risk.
  • Dialog’s most relevant customers represented more than 83% of its revenue. Besides, Apple accounted for more than 10% of its revenue.
  • Regarding the target’s share price, I would not buy at the current mark. I will be willing to buy at $11.60 because the merger is about to close in late 2020.

Adesto Technologies Corporation (NASDAQ:IOTS) signed a merger agreement with Dialog Semiconductors (OTCPK:DLGNF). In my view, both companies will generate much more sales together than separately. The merger would also include cost synergies and will be EPS accretive. Besides, the conditions, the termination fees and Adesto's Board of Directors make me believe that the closure of the merger is likely. I may not buy shares of IOTS at the current share price, but will follow the company closely.

The Target: Adesto

Adesto Technologies Corporation offers semiconductors and embedded systems that are essential building blocks of Internet of Things edge devices. It was founded in 2006, and is headquartered in Santa Clara, California.

There are two features that make this company a hidden gem. They include revenue growth and the large number of customers from different industries. In my view, the company is a perfect target for corporation willing to diversity its revenue sources:

Source: IR Presentation

Source: IR Presentation

Besides, from 2018 to 2022, the company's market opportunity is expected to increase at a CAGR of 25%. Again, Adesto is, due to this reason, an interesting target for large corporations willing to profit from the growing IoT market:

Source: IR Presentation

Balance Sheet And Expected 2020 Sales

Adesto's balance sheet is very stable. As of September 30, 2019, cash in hand was equal to $37 million, accounts receivable was $33 million, and goodwill was equal to $38 million. In my view, both the goodwill and the accounts receivable are interesting for the buyer as they mean potential FCF. On the liability side, the company reports $20 million in accounts payable, and $55 million in convertible debt, which don't seem large amounts. Taking into account Adesto's cash in hand and accounts receivables, the amount of liabilities don't seem that large:

Source: Quarterly

This article was written by

From China, I am a financial advisor with 10 years of expertise. I love arbs and special situations.My email: lijuanwang@mail.comDISCLAIMER: Stocks and options trading involves substantial risk of loss and is not suitable for every investor. The valuation of futures, stocks and options may fluctuate, and, as a result, readers may lose more than their original investment. The impact of seasonal and geopolitical events is already factored into market prices. The highly leveraged nature of futures trading means that small market movements will have a great impact on your trading account and this can work against you, leading to large losses or can work for you, leading to large gains. If the market moves against you, you may sustain a total loss greater than the amount you deposited into your account. You are responsible for all the risks and financial resources you use and for the chosen trading system. You should not engage in trading unless you fully understand the nature of the transactions you are entering into and the extent of your exposure to loss. If you do not fully understand these risks you must seek independent advice from your financial advisor. All trading strategies are used at your own risk.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in IOTS over 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.

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