Transaction solidifies Extreme’s position in the WLAN market with a combined #3 share for its targetenterprise campus market
Transaction enables Zebra to enhance its strategic focus on its market-leading categories to deliver innovative Enterprise Asset Intelligence solutions
Extreme Networks and Zebra Technologies Corporation (NASDAQ: ZBRA) recently announced that Extreme Networks has agreed to 
acquire Zebra’s wireless LAN (WLAN) businessin an all-cashtransaction.The transaction is expected to close in the fourth quarter of 2016 (which is the second quarter of fiscal 2017 for Extreme Networks),subject to customary closing conditions including regulatory approvals.
“Combining Zebra’s WLAN technologies and marquee retail, transportation and logistics, and hospitality customers with Extreme Networks’ wired and wireless capabilities, recognized as visionary in the Gartner Magic Quadrant, creates the industry’s number three WLAN enterprise campus powerhouse,” said Ed Meyercord, President and CEO of Extreme Networks. “WLAN is the fastest growing segment in the networking industry. Our heritage of delivering innovative and pioneering technology is reinforced with today’s announcement, underscoring our commitment to providing customers worldwide with unified visibility and control across their wired and wireless networks.”
“The WLAN business is an ideal fit with Extreme Networks as a pure play networking company, and we are proud of our WLAN employees for the contributions they have made to Zebra and will make in the future,” said Anders Gustafsson, CEO of Zebra Technologies. “This transaction enables us to increase our focus on delivering the best Enterprise Asset Intelligence solutions, in collaboration with our partners, that give our customers real-time visibility into their operations so they can make smarter decisions.We continually evaluate our business to ensure we are focusing on the areas which generate the strongest growth and highest return profiles, and today’s announcement exemplifies that commitment to our shareholders.”
Strategic Fit for Extreme
This acquisition will strengthen and expand Extreme Networks’ end-to-end, wired and wireless software-driven networking solutions and complements its vertical market focus.According to a leading industry analyst firm, the combined WLAN business will be the third largest provider in its combined target markets and fourth largest by market share.Extreme will acquire customers, personnel and technology assets from Zebra.
ZebraWLAN customers willbenefit from Extreme Networks’ entire portfolio. The acquisition positions Extreme Networks as a leader across the hospitality, education, healthcare, manufacturing and state and local government markets and extends the company into new verticals such as retail, transportation and logistics, and broader hospitality, creating additional opportunities for growth. All WLAN customers in each vertical market served, regardless of the solutions they own, will have access to Extreme Networks’ award winning ExtremeWorks™ services offerings.Extreme Networks’ best of breed mobility solutions will be offered to all registered resellers under the Extreme Partner Network program.
Extreme Networks will continue to invest in the newly acquired technology which will bolster the company’ssoftware-driven solutions portfoliowhich includes ExtremeWireless™, ExtremeManagement™, ExtremeControl™, ExtremeAnalytics™, ExtremeSwitching™ and ExtremeCloud™. With significantly broadened capabilities, these solutions will leverage the acquired business’ software technologies including theWiNG wireless operating system, NSight advanced network troubleshooting, service assurance and vendor-agnostic AirDefense solutions. Through the acquisition, Extreme Networks will add in-house Managed Services’ capabilities to its existing offerings, providing broader options for all customers of the combined business.
Extreme Networks expects the transaction to be accretive to cash flow and earnings for its fiscal year 2017 and expects to generate over $115 million in annualized revenue from the acquired WLAN assets.
Outlook for Zebra
The sale of the WLAN business is expected to have an immaterial impact to Zebra’s adjusted EBITDA margin. The company anticipates the transaction will be dilutive to earnings in the fourth quarter of 2016. Net proceeds from the sale will be used to pay down debt. Zebra expects to provide any updates to its full-year outlook during its third quarter earnings release in November.
Zebra will continue to offer customers a complete end-to-end solution – from mobile computers and scanners to specialty printers, RFID, software and services – for identifying, tracking and managing critical assets, people and transactions. Zebra’s broad range of differentiated products, deep understanding of its customers and continued investment in R&D ensure that the company offers highly relevant solutions globally that help customers take advantage of key technology trends including theInternet of Things, mobility and cloud computing. Zebra has the industry’s most comprehensive go-to-market channel network of value-added resellers, integrators, independent software vendors, distributors and original equipment manufacturers.
Terms of the Transaction
The transaction purchase price is $55 million.Extreme expects to fund the transaction with a combination of cash on hand along with fully committed financing available under its credit facility, which is being expanded in connection with this transaction. The transaction is subject to customary closing conditions, including certain regulatory approvals, and is expected to close in the fourth quarter of 2016(which is the second quarter of fiscal 2017 for Extreme Networks). Extreme expects to file a Current Report on Form 8-K with the Securities and Exchange Commission later today providing further details regarding the terms of the transaction.
Moelis & Company LLC is acting as financial advisor and Kirkland & Ellis LLP is acting as legal advisor to Zebra Technologies Corp. Latham & Watkins LLP is acting as legal advisor and Cowen and Company provided a fairness opinionto Extreme Networks.
Forward-Looking Statements
Except for the historical information contained herein, the matters set forth in this press release, including without limitation statements as to the features, performance, and benefits of Extreme Networks products, future investment by Extreme Networks in the acquired business and the anticipated benefits of the acquisition of Zebra’s WLAN business are forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements speak only as of the date hereof. Because such statements deal with future events, they are subject to risks and uncertainties and actual results may differ materially from those anticipated or projected. These risks and uncertainties include the risk that the acquisition may not be completed, the risk that Extreme may not realize the anticipated benefits of the acquisition or that such benefits may take longer to realize than anticipated, and other risks associated with the acquisition, such as the ability to successfully integrate the acquired technologies and operations and the actual results of their use in different environments, the potential for unexpected liabilities and Extreme Networks’ ability to retain customer relationships and key employees and Extreme Networks’ ability to invest in the business on a going forward basis. Extreme Networks undertakes no obligation to update the forward-looking information in this release. Other important factors that could cause actual results to differ materially are contained in the Company’s 10-Qs and 10-Ks that are on file with the Securities and Exchange Commission. http://www.sec.gov/.
