Chipmaker Semtech Corp. on Tuesday announced plans to acquire Sierra Wireless Inc., a developer of networking technology for connected devices. 

The acquisition values Sierra Wireless at $1.2 billion. Shareholders of the company are set to receive $31 per share, a 25% premium to its closing price on July 29, the day before word of the acquisition first emerged.

Camarillo, California-based Semtech develops chips for a variety of applications. The company makes power management chips for consumer devices. It also sells components that are used to build optical networks, as well as modules designed to protect a device’s circuitry from a sudden increase in voltage and related technical issues.

Semtech has a particularly big presence in the wireless networking market. It sells chips that can be embedded in “internet of things” devices to connect them to the web. Semtech’s chips establish connections using the LoRa wireless data transfer technology, which is specifically optimized for IoT use cases.

Sierra Wireless also focuses on the IoT market. The Vancouver-based company sells IoT modules, specialized circuit boards that are used to link connected devices to 4G and 5G carrier networks. Sierra Wireless offers other types of networking hardware as well, including routers optimized for the IoT market.

The company operates a marketplace through which customers can buy wireless data plans for IoT devices. To help customers manage their device fleets and data plans, the company has developed a cloud-based management platform dubbed AirVantage.

Semtech is building its own set of cloud capabilities to help customers run their IoT deployments more efficiently. The company believes that the addition of Sierra Wireless’ technology to its product portfolio will enable it to unlock new revenue opportunities in this area. Additionally, Semtech expects that the deal will enable it to better address markets such as the agriculture, construction and logistics segments. 

“We believe the next era of technology growth is the full digitization of our industrial world – the Internet of Everything,” said Semtech President and Chief Executive Officer Mohan Maheswaran. “Our vision is to build a simple, horizontal platform with the goal of accelerating this transformation and to bring about a smarter and more sustainable planet.”

Semtech expects to close the acquisition in 2023. From there, the company estimates that the acquisition will about double its annual revenue as well as improve adjusted earnings per share. Additionally, the company expects to realize annual operational synergies of $40 million within 12 to 18 months of the deal’s completion.

Against the backdrop of the acquisition, Sierra Wireless today posted preliminary financial results for its second quarter. The company is projecting adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, of $21 million to $23 million. Sierra Wireless estimates that its quarterly revenue will range between $185 million and $189 million. 

Image: Semtech