by Steve Hoffenberg | 11/03/2021
On November 2, 2021, Digi International announced that it had acquired Ventus Holdings, a managed network-as-a-service provider, in a cash deal for $347M. The price tag, by far Digi’s largest acquisition ever, raised some VDC analyst eyebrows, as it exceeded Digi’s total annual revenue of $279M for FY2020. (Digi’s FY2021 ended September 30, 2021, with financials to be reported on November 10.) As a private company, Ventus did not publicly disclose its revenue, but Digi noted that the acquisition price was slightly more than eight times Ventus’ annual revenue, which would put that at about $43M. Only time will tell if the purchase price was a good value for Digi, but VDC sees a range of synergies between the companies that will undoubtedly be of benefit to Digi.
Digi is a leading provider of IoT communications products, software, and services for various vertical markets, including energy, transportation, healthcare, manufacturing, and retail. Its products range from embedded wireless modules and single-board computers to sensors, gateways, and cellular routers. Its software and services include a remote management platform, wireless connectivity services, professional services, as well as SmartSense solutions that combine sensors for temperature and other environmental conditions with wireless routers, cellular services, and cloud-based monitoring and management. SmartSense is sold as-a-service, which generates recurring revenue. In FY2020, SmartSense accounted for about 10% of Digi revenue, and the company has stated a strategic objective of increasing the portion of its business that derives from recurring revenue. Enter Ventus.
Ventus provides managed connectivity services to customers in the ATM/banking, kiosk, retail, restaurant/hospitality, and other markets, with ATMs accounting for the largest share. Notably, virtually all of Ventus’ business is solution-based as-a-service, generating recurring revenue. Ventus designs and provisions its own hardware, but such hardware is not sold, it is only included as part of a solution. As Digi CEO Ron Konezny told VDC in a discussion after the acquisition was announced, Ventus’ business is “selling uptime.”
Ventus’ impact will represent more than simple addition of its existing business to Digi, on several levels:
• Ventus’ extensive experience, particularly in development of underlying software, can be leveraged to layer as-a-service solutions on top of many existing Digi products in industrial applications, and can likely help Digi learn to best market and sell such solutions. • Ventus can expand Digi’s markets such as in ATMs/banking, retail, kiosks, digital signage, and casino/lottery gaming, where Digi can integrate Ventus with sensing solutions that add value beyond the connectivity. (Gaming company IGT is already a customer of both companies.) And Ventus could potentially integrate some of its offerings with Digi’s for customers in the banking industry. (Digi networking subsidiary Opengear, acquired in 2019, already has several large bank customers.) • Both companies are U.S.-based. In FY2020, about one-quarter of Digi’s business was outside of North America, while nearly all of Ventus’ business was within that region. Digi can open up international markets to Ventus solutions, particularly in Europe. Digi already has contracts with cellular carriers in 180 countries, which were outside of Ventus’ existing scope. • Digi’s distribution channels can become resellers of Ventus solutions, greatly expanding the effective Ventus salesforce. • Digi’s size and scale will eventually lead to reduced production costs for Ventus hardware. |
Digi CEO Konezny acknowledged that it will take time to ramp up the businesses to make the most of the synergies between them. But Digi didn’t buy a start up. Ventus is well-established in its markets, and as Konezny, put it to VDC, Ventus has “high quality revenue.”
Maybe we’ll lower our eyebrows over the acquisition price.