Cellular On The Move

Every once in a while, a company throws in all its chips for one big hand. Such was Sierra Wireless Inc.’s purchase of French rival Wavecom SA in March. Before the deal, Sierra employed roughly 500 people to build and sell its wireless computing products. The addition of Wavecom brings the head count to about 900, creating a large-scale, multinational wireless conglomerate.

Every once in a while, a company throws in all its chips for one big hand.


Such was Sierra Wireless Inc.’s purchase of French rival Wavecom SA in March. Before the deal, Sierra employed roughly 500 people to build and sell its wireless computing products. The addition of Wavecom brings the head count to about 900, creating a large-scale, multinational wireless conglomerate.

The question now is, Was it worth the risk? Was it wise to spend safe cash on a struggling company in a recession? A lot of investors didn’t think so, with Sierra’s stock price falling noticeably upon news of the deal. Sierra CEO Jason Cohenour, however, explains that, in bad times, the companies that act boldly are often the ones that come out on top. (As told to Peter Severinson)

At Sierra more than 80 per cent of our business is mobile computing, things like USBs used to connect to high-speed cellular networks. Market growth has been phenomenal, but this business has some inherent vulnerabilities too. Over 50 per cent of our revenue comes from two big wireless operators, and they could change their mind on a day-to-day basis about which products they’re going to take and from which supplier.

Less than 20 per cent of our business is machine-to-machine products, which – while successful – haven’t achieved the same kind of growth. But it’s also quite a defensible business, less vulnerable to competition, because there are so many different markets and customers, and the solutions tend to be a bit more complex. So we view it as a slower-growth business but also one with less volatility. We wanted to take this side of our business to the next level, and in the machine-to-machine landscape Wavecom was the most attractive opportunity, with strong market share in segments like automotive, home alarm security and payment terminals.

We did have an acquisition war chest of about US$273 million on the balance sheet. For a company of our size, that’s a lot of cash. After four years of having conversations with Wavecom, another company launched a hostile bid to buy it in October 2008. Suddenly, the asset that we’ve been interested in for so long but really didn’t have the opportunity to buy was in play. So we quickly jumped on it and negotiated a friendly deal at a bit of a premium.

It was the big, bold move. On the surface, it looks risky to deploy cash in this tough economic environment. But you know what? There’s a lot of stories where big, bold moves were made in the most difficult times, and they paid off really handsomely.

Of course, a negative investor reaction is never nice to see. Cash is king in this awful economic environment, and we were viewed as a company with a great deal of safety, which gave investors some comfort. And now we’re deploying a lot of that cash. But you know, investors aren’t business operators; we are. This was definitely not about having an instantly lucrative transaction; this is going to be a large, complicated integration. But strategically, it’s going to really put us on a very strong platform. Now it’s up to us to prove to the investors that, over time, it was the right move. Time will tell.