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Earlier this month, in what might be the deal of 2017, Itron agreed to acquire Silver Spring Networks, in a merger that brings together two of the main driving forces of the Internet of Things (IoT) in smart cities and grids.

The two firms announced that they had signed a definitive agreement for Itron to acquire all outstanding shares of Silver Spring for $16.25 per share in cash. Meaning the transaction is valued at approximately $830 million, net of $118 million of Silver Spring’s cash. This represents a premium of 25% to Silver Spring’s closing share price on Sept. 15, 2017, the last trading day prior to the announcement of the transaction. The transaction has been unanimously approved by the boards of directors of both companies.

Back in 2015 Memoori reported, “over the past few years, we’ve seen Smart grid and IT technology vendors change their approach to the utility data analytics. Recently two smart network firms, Itron and Silver Spring Networks, have outlined a similar direction to their future development.” We highlighted then how they had been picking up traction in a slow market and were laying out their next field of competition – the internet of things (IoT).

Headquartered in San Jose, California, Silver Spring’s current offering now revolves around what they call the “Internet of Important Things,” which are comprised of connectivity platforms and solutions for utilities and cities.

To date, Silver Spring has delivered more than 26.7 million network-enabled devices across five continents and they have consistently hit the headlines with blockbuster deals. In 2015, for example, Paris “the city of lights” chose the California based firm to revolutionise their streetlight and traffic control systems city wide. Silver Spring was also selected by Florida Power & Light for what was, at the time, the world’s largest connected lighting project, encompassing nearly 500,000 networked street lights across South Florida.

Mike Bell, president and chief executive officer of Silver Spring Networks, said, “Joining forces with Itron will enable us to help more utilities and cities adopt the industrial Internet, improve their performance and reliability, and better position themselves for a connected future. This strong combination will address end-to-end solutions for our customers and will create immediate value for our stockholders; it will also provide new opportunities for our employees as part of a larger, global technology leader for the Internet of Important Things.”

Last year Silver Spring generated impressive revenues of $311 million with a gross margin of 44% and ended the year with $1.2 billion of backlog. With its global footprint in the smart utility and smart city sectors, Silver Spring generated more than 20% of its revenues through its primarily recurring managed services and SaaS solutions, an area that is also of strategic focus for Itron.

Itron, meanwhile, anticipates approximately $50 million in annualized cost synergies to be substantially realized within three years of completing the transaction by optimizing combined operations and expenses. The acquisition is expected to have a positive impact on Itron’s long-term growth rate, be accretive to gross margin in the first year after completing the transaction and be accretive to non-GAAP EPS and adjusted EBITDA in the second year, excluding one-time, transaction-related costs and including stock-based compensation costs that Silver Spring currently excludes from its reported non-GAAP results.

“The addition of Silver Spring brings more capabilities to our offerings and advances our strategy of delivering highly secure, value-generating solutions for the critical infrastructure within utilities, smart cities and the broader industrial IoT sector,” said Philip Mezey, Itron’s president and chief executive officer. “By converging our complementary, standards-based technologies, we will enhance customer efficiencies with solutions that optimize devices, network technologies, outcomes and analytics. This enables us to increase investment in new solutions and accelerate innovation for our combined customer base, covering more than 200 million people.”

“This transaction also increases our presence in the sizable industrial IoT segment, driving higher growth with recurring revenues and enabling Itron to increase profitability beyond our mid-teens EBITDA margin target,” continued Mezey. “Combining Silver Spring’s entrepreneurial culture and proven capabilities with Itron’s operational strengths, depth of solutions and customer intimacy will result in a company that is well-positioned in the fast growing critical infrastructure space. We look forward to welcoming Silver Spring’s talented team of engineers and professionals to Itron and are confident that together, we are best equipped to provide industry-leading solutions that will deliver greater value to our customers.”

Itron plans to finance the transaction using a combination of cash and approximately $750 million in incremental new debt. The transaction is expected to close in late 2017 or early 2018 and is subject to customary closing conditions, including regulatory approval and the approval of Silver Spring’s stockholders. However, little resistance is anticipated in the creation of what will be a powerhouse in the smart city and grid sectors.

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