In a bold and perhaps risky move to advance itself as a leader in the RFID and Internet of Things market, Zebra Technologies announced on Tuesday that it is acquiring the enterprise mobility or handheld scanner solutions business from Motorola Solutions.
By paying $3.45 billion for Motorola, regarded as the largest provider of RFID readers, Zebra believes the move makes it the go-to provider for RFID solutions. Motorola, for example, had a strong presence in the retail sector, where item level RFID tagging is experiencing rapid growth.
“By combining both companies we clearly will be the leader in RFID products,” says Philip Gerskovich, senior vice president of new growth platforms at Zebra Technologies. “That will benefit customers by allowing us to produce solutions that are quicker and easier to deploy and make it easier to get a return on investment for RFID applications.”
The acquisition also burdens Zebra with $3.25 billion in debt (it plans to use $200 million in free cash toward the deal), a major reason why the stock tanked 10 percent on the day the deal was announced. The $3.25 billion in debt represented more than Zebra’s market value of about $3.1 billion after the markets closed on Tuesday.
By gobbling up a much larger firm, the deal will more than double Zebra’s annual sales and establishes Zebra as a leader in the burgeoning Internet of Things market.
Zebra posted 2013 sales of $1 billion. The two companies combined 2013 sales would have totaled $3.5 billion. While global brand strategy has not been determined, it appears that the new company will operate under the Zebra Technology name and that the well-known Motorola brand, iconic in the scanning business, may disappear.
The deal, which is expected to close by the end of the year, gives Zebra access to Motorola Solutions’ wide range of commercial customers and establishes them as a major player in the retail segment, where RFID is exploding through apparel tagging.
While the acquisition allows Motorola to focus entirely on the mission-critical communications for government and public safety customers, the transaction strengthens Zebra’s asset tracking portfolio to create a global leader in enterprise asset intelligence for the connected age.
Like many companies, Zebra is making a hard push to emerge as a leader in the Internet of Things world, where 50 billion devices will be connected over the next 10 years.
“This [deal] is an important part of that strategy,” says Gerskovich. “We have been investing a lot in this, especially our new software platform called Zatar, which is the software framework for building IoT applications. One of the key product areas for us with that platform is RFID applications.
“That platform framework is a tool to build applications but it needs devices to be connected to it. Of course we are always hooking up Zebra devices, like our RFID printer encoders, and clearly Motorola is a leader in selling RFID readers, so they are an important part of the whole solution in deploying these RFID IoT applications.”
Gerskovich also thinks the Motorola deal will address a developing trend, in that most enterprise applications going forward will be built to be deployed out of the cloud and run on mobile devices. “Motorola’s rugged Android based platform is the best platform for deploying those applications for the mobile workforce,” he says.
Gerskovich says that the deal to buy Motorola’s enterprise solutions business was a “competitive process” with other suitors involved, and began last year after Motorola determined it should put the business up for sale. However, the companies have been discussing a move for years.
“Well, in a way it goes back 20 years,” he says, “because the two companies have talked about it for many years. Both companies been investing commonly in these markets but we’ve been doing it in complementary ways. So by bringing two companies together we believe we can offer better solutions for our customers and build more integrated and easy to deploy products.”