The Audinate Group Ltd (ASX: AD8) share price is under scrutiny today after announcing the acquisition of the Silex Insight video business.
Audinate’s Silex Insight video acquisition
Audinate is buying the Belgian-based video business Silex Insight.
The main purpose of Silex is to produce video networking products for manufacturers of AV equipment.
This deal will include a team of eight engineers who have extensive video implementation expertise and an average time of working at the business of 16 years.
Audinate said this this acquisition is compelling because it adds to Audinate’s existing video capabilities in the UK and aligns with Audinate’s strategic vision for video over IP.
In-particular, the transaction will increase video ‘FPGA’ expertise, enable acceleration of the video product roadmap and cement critical mass for video engineering in Europe.
The deal is expected to be completed at the end of January 2022.
How much is this business going to cost Audinate?
Upfront, Audinate is going to make a payment of U$6.5 million, which represents approximately 2.3 times the expected revenue for the 12 months to 31 December 2021.
There could also be an earn-out of up to US$1.5 million based on the uplift of revenue for the 12 months from the acquisition date.
If the maximum consideration is payable, the acquired business would achieve improved EBITDA (EBITDA explained) – which is currently minimal – at a lower purchase price revenue multiple.
This will be paid from existing cash reserves.
The transaction consideration reflects the challenging supply chain environment which is impacting the Silex video business, like most 0f the AV industry. Component shortages are expected to hurt revenue in the first half of the 2022 calendar year, though it has a strong order book.
It has an existing revenue base of approximately US$2.5 million from a range of products including video codec IP Cores, Viper Board, Video ASSP and design services.
Summary thoughts about this deal and the Audinate share price
The video offering from Audinate could be the key to unlocking the market to be able to win over a lot more clients, not just the audio ones. Its acquisitions have been smart to quickly improve its video capabilities.
There has been a recovery in demand for Audinate’s products, which is reflected in the share price, but the supply chain issues are causing a short-term impact.
I think the business has an attractive long-term future and could be worth owning a parcel today, however I’d use an accumulation strategy for buying more on business successes or share price weakness, because the price today is not exactly cheap.
