Harmonic’s Acquisition of Omneon Reflects Changing Needs of Industry
Harmonic’s $274 million purchase of Omneon yesterday is the latest indication that the technology revolution is reshaping the customer base of broadcast- and cable-equipment manufacturers.
“As the boundaries between content [companies] and delivery [companies] start to blur and disappear altogether,” says David Price, Harmonic VP of business development and marketing communications, “working with Omneon provides a great complementary way to deliver end-to-end systems that work on a standalone basis.”
The deal immediately puts both companies in front of new customers. Harmonic’s encoding and transmission technologies have made it an important part of cable, video-on-demand services, and broadcast-transmission facilities, helping customers distribute content more efficiently to viewers on multiple platforms. And Omneon’s broadcast-production and playout-server technology is typically found in production and master-control areas but not in the areas where Harmonic technologies dominate.
The on-demand cable market, with its need for more-streamlined storage, encoding, and transcoding systems, is just one market opportunity.
“We have been reaching beyond the content-provider market and looking at new media and understanding the on-demand world,” says Geoff Stedman, Omneon SVP of marketing and business development. That interest in market expansion led to conversations with Harmonic about possible partnerships and, eventually, to the $274 million deal.
“There isn’t a lot of overlap in products, and there is a similar culture that is focused on video workflows plus a commitment to customers,” he points out. The new company will have a combined video-focused global R&D organization of 450 engineers, a combined global sales and service organization of 330 people, and a network of more than 250 global sales-channel partners.
Stedman says the first fruits of the new Harmonic will be on display at IBC in Amsterdam in September. The Omneon name will live on as a brand, and much of the Omneon management team will transition to Harmonic.
For the year ended Dec. 31, 2009, Omneon’s revenues were approximately $105 million, 67% from outside the U.S., with no single customer representing more than 10% of total revenue. Omneon’s gross margin was 58% in 2009.
Harmonic will pay $190 million in cash and issue approximately 17.1 million shares of its common stock. This represents an enterprise value of approximately $274 million, based on the closing price of Harmonic common stock on May 5 and the net of Omneon’s cash balances, expected to be approximately $32 million at closing. The proposed acquisition, subject to customary closing conditions and regulatory approvals, is expected to close in the third quarter. It is also subject to the approval of Omneon’s stockholders, and Harmonic has entered into voting agreements with holders of a majority of Omneon’s outstanding shares of capital stock, under which such Omneon stockholders agree to vote in favor of the transaction.
Most of the Omneon executive management team is expected to join Harmonic at closing, including co-founder/Vice Chairman Lawrence Kaplan and President/CEO Suresh Vasudevan, who previously held senior executive positions at NetApp and also worked for international management-consulting firm McKinsey & Co.