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Research: TMT
Vantiva has announced its intention to buy CommScope’s Home Networks business in exchange for CommScope taking a 25% stake in the enlarged group. The deal would significantly increase the scale of Vantiva’s Connected Home business, with combined revenues of $3.6bn (€3.4bn) in the 12 months to June 2023, enlarging its customer base and geographic reach. Run-rate cost synergies of $100m by FY26 have been identified and the deal (if it proceeds as intended) would accelerate the improvement in cash generation, so reducing the debt burden. An earn-out based on demanding EBITDA targets across FY25–29 is in place, capped at $100m. Completion is expected in Q423.
Vantiva |
Set to buy CommScope Home Networks |
Proposed acquisition |
Technology hardware |
4 October 2023 |
Share price performance
Business description
Analyst
Vantiva is a research client of Edison Investment Research Limited |
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Vantiva has announced its intention to buy CommScope’s Home Networks business in exchange for CommScope taking a 25% stake in the enlarged group. The deal would significantly increase the scale of Vantiva’s Connected Home business, with combined revenues of $3.6bn (€3.4bn) in the 12 months to June 2023, enlarging its customer base and geographic reach. Run-rate cost synergies of $100m by FY26 have been identified and the deal (if it proceeds as intended) would accelerate the improvement in cash generation, so reducing the debt burden. An earn-out based on demanding EBITDA targets across FY25–29 is in place, capped at $100m. Completion is expected in Q423.
Year |
Revenue |
PBT* |
EPS* |
DPS |
EV/EBITDA |
P/E |
12/21 |
2.25 |
(126) |
(61) |
0 |
4.7 |
N/A |
12/22 |
2.78 |
(497) |
(197) |
0 |
3.1 |
N/A |
12/23e |
2.64 |
(22) |
(8) |
0 |
3.5 |
N/A |
12/24e |
2.70 |
(14) |
(4) |
0 |
3.3 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
The intention is that the deal is cemented through the issue to CommScope of shares representing 25% of the enlarged group, which we calculate at around 118.4m new shares. The deal is structured on a debt-free, cash-free basis and the new shares are subject to an 18-month lock-up period. Following the deal there would be an earn-out of a maximum of $100m (cumulative), contingent on Vantiva achieving EBITDA of at least €400m in any one given fiscal year after the first full year post closing, so in any one of FY25 through to FY29. Payment would be capped at $50m in any one fiscal year. For context, our current EBITDA estimate for Vantiva for FY24 is €151m. CommScope has reported a small loss at the EBITDA level for the last four quarters.
CommScope has been looking to separate its Home Networks business from the group and has been implementing a transformation plan but is less far along this journey than Vantiva. Both companies have been experiencing reduced demand from their Tier 1 customers over recent reporting periods, with high levels of inventory and continuing caution over end markets (see our August update). Vantiva has the slightly larger business, with revenues over the 12 months to June 2023 of €2.0bn to CommScope’s $1.5bn (€1.4bn). There is reportedly little overlap on the customer base, and as the inventory situation unwinds, we would anticipate a meaningful recovery in demand for both entities.
Vantiva’s main shareholders are represented at board level and are backing the transaction, as is the largest shareholder not on the board. All being well, a meeting to approve the deal will be held in December, with completion ahead of the year-end.
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Research: Investment Companies
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