Electronic components specialist discoverIE Group PLC has announced its acquisition of UK-based Silvertel, which takes it into the emerging area of the power-over-ethernet (PoE). The deal, at an initial cash outlay of £21 million, is expected to bolster discoverIE's position in a sector that's projected to witness significant growth in the coming years.
What's the deal?
Silvertel stands out as a designer and manufacturer of high-performance PoE modules, known for their efficiency and compact size. For those unfamiliar with the term, PoE refers to the technology that allows electrical power and data to be transmitted over ethernet cables, eliminating the need for separate power cords.
According to industry experts, as cited by finnCap, the PoE market is on a growth trajectory. Expectations are set for a compound annual growth rate (CAGR) of 12-15%, potentially reaching a market size of US$2 billion by 2025-27.
Why this matters
The acquisition isn't just about tapping into a growing market. Silvertel is set to join discoverIE's Magnetics & Controls division, opening doors for cross-selling opportunities with the group's Controls businesses. This synergy could potentially amplify the benefits of the acquisition for discoverIE.
finnCap has responded positively to the acquisition, upgrading its forecast earnings per share (EPS) estimates for discoverIE by +1%. While this upgrade is based on a conservative assumption regarding Silvertel's initial contribution (keeping in mind the ongoing macroeconomic uncertainties), finnCap emphasises that there's a significant upside if the management's ambitions come to fruition. This is further highlighted by the earn-out clause in the deal, where up to £23 million will be payable based on Silvertel's performance over the next four years.
Looking ahead
Despite the challenges posed by the broader macroeconomic environment, discoverIE's growth strategy appears to be on track. The company's focus on long-term markets across Europe, North America and Asia, coupled with a diversified customer base, has been its strength. The acquisition of Silvertel, as finnCap suggests, is in line with this strategy. Its target price for discoverIE remains at 1,110p (currently 731.6p), factoring in potential acquisitions.