Digi International Inc., Minnetonka, Minn., has acquired MaxStream Inc., a privately held corporation and a manufacturer of wireless device networking products. The acquisition is a merger transaction for $38.5 million of cash and stock, with $19.25 million paid in cash and $19.25 million in Digi stock.
Based in Lindon, Utah, and employing 49 people, MaxStream generated $10.4 million in revenue and $1.3 million in net income, or 12.7 percent of revenue, in the year ending Dec. 31, 2005.
MaxStream supplies device manufacturers and integrators with wireless modules and box products for both industrial and commercial markets. The products allow customers to wirelessly monitor and control electronic devices with a menu of distance and speed options, ranging from 100 feet to 40 miles, and a few kilobits per second (Kbps) to 1.5 megabits per second (Mbps). Typical applications include automated utility meter reading, oil and gas monitoring, remote control and monitoring of commercial heating and air conditioning systems, vehicle information access for fleet management, industrial controls, wireless sensors and electronic signals.
Strategic fit
"This is really an exciting combination; the strategic fit between the two companies is remarkable," said Joe Dunsmore, chairman, president and chief executive officer of Digi. "Our product lines are entirely complementary. We're both focused on the commercial-grade device networking market and our core strategies of providing turnkey box products and embedded modules are the same."
"What a great opportunity this is for MaxStream to join with a company that has such a great reputation in the industry," said Brad Walters, president and chief executive officer of MaxStream. "Culturally, the two companies are very compatible and we're really looking forward to jointly addressing the rapidly growing wireless market."
Digi is focused on connecting commercial and industrial devices via both embedded and boxed/packaged products. With a long history of wired connectivity solutions—serial, Universal Serial Bus, or USB, and Ethernet—Digi has moved aggressively into wireless in the past four years with products and capabilities in both Wireless Fidelity (WiFi), which is based on the Institute of Electrical and Electronics Engineers’ IEEE 802.11 standard, and in the cellular arena. As the world continues to migrate from wired to wireless, MaxStream wireless technologies and products significantly expand Digi's wireless offering—covering both short and medium range using embedded modules and boxed/packaged solutions. Additionally MaxStream has quickly become a leader in the market for networks based on the ZigBee specification and other IEEE 802.15.4-based networks, which are targeted at very low power, low bandwidth solutions for applications such as wireless sensor networks.
"The combination of Digi and MaxStream provides the capability to provide their customers end-to-end wireless solutions," said Glenn Allmendinger, founder and president of Harbor Research Inc., in Boston. "Other companies are limited in what they can provide—either the local [area network] (LAN)or the wide area network (WAN) wireless solution. Digi had the WAN with their Cellular Routers and part of the LAN with their embedded WiFi solutions. Adding MaxStream's proprietary and Zigbee-based wireless technologies completes their portfolio. Digi has done a wonderful job of transforming itself from its legacy products into a provider of commercial grade wireless solutions. What impresses me is that they have done this transformation while maintaining strong financial performance. We consider Digi ‘best-in-class’ when it comes to corporate development."
Wholly owned
Pursuant to the terms of the merger agreement, MaxStream became a wholly owned subsidiary of Digi. The cash and stock purchase price was used to purchase all of the outstanding shares of MaxStream stock and to buy out all outstanding MaxStream stock options. Digi will retain the MaxStream office in Lindon, Utah.
Digi expects MaxStream to contribute in excess of $2.5 million in revenue for the fourth fiscal quarter of 2006. Digi anticipates MaxStream will contribute revenue in a range of $20 million to $24 million for fiscal year 2007.
Digi anticipates that one-time expenses associated with the acquisition, primarily in-process research and development, will reduce earnings per diluted share by $0.07 to $0.09 for the fourth fiscal quarter of 2006. Digi expects the MaxStream acquisition will be $0.01 to $0.03 accretive per diluted share during fiscal year 2007. Digi expects MaxStream's gross margin to be in the 53-57 percent range for fiscal 2007.
