ADDvantage Adams acquisition review

ADDvantage technologies (AEY) was discussed previously on this site as a very interesting net-net investment. This year they acquired net operating assets of Adams Global Communications and it passed mostly unnoticed (at least on the share price).  On this fiscal year report, we see that Admas Global Communications acquisition was a strategic one.

Here’s the storyboard out of the 10K… 

On May 20, 2011, the Company acquired the net operating assets of Adams Global Communications, LLC.  AGC purchases and sells cable television access and transport equipment, digital converter boxes and modems in the United States, Canada and Latin American markets.  In addition, the Company hired all 12 of AGC’s employees.
The Company’s Broadband Remarketing International, LLC (“BRI”) subsidiary also sells digital converter boxes.  We believe the acquisition of AGC was a strategic fit for the Company as BRI’s customer base was different than that of AGC, and BRI also sold product to AGC, effectively operating as a distributor to AGC.  Effective with the closing of the acquisition, the Company began marketing BRI as Adams Global Communications or AGC.
AGC also has a reseller agreement with Arris Solutions (“Arris”) to sell cable television equipment in the United States.  The Company believes it can expand this relationship with Arris to stock certain product lines consistent with its On Hand – On Demand strategy.
Adams generated refurbished sales over 1.2 million dollars in forth quarter alone!  With a 30% margin, this acquisition generated 360k of gross profit in Q4-2011 alone.  Quite an impressive value on a total enterprise gross profit of 3.4M for the whole company.  It is accretive of 12% net income or 0.77¢ per share per quarter.
Here’s another quote explaning the “strategy” behing Adams acquisition
In addition, we continue to expand our relationships with vendors and establish new vendors and product lines for our company.  In 2011, we acquired the net operating assets of Adams Global Communications, LLC.  With this acquisition, we became a reseller of Arris Solutions cable television products in the United States, and we now offer products from the top three vendors, Cisco, Motorola and Arris Solutions, in the cable television industry.  In 2010, NCS became a Master Distributor for the United States distribution of Fujitsu Frontech North America encoders, decoders and media solutions products and a member of the Fujitsu global channel partner program servicing the United States.  This relationship has started to expand our customer base into the broadcast market segment of the industry.
So Arris products can now be offered to current customers and AEY can acquire customers not using their other 2 major brands (CISCO and Motorola) and using exclusively Arris products.
What do you think of AEY?
Disclosure : Author is long AEY.
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Posted in AEY

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