VANCOUVER: Sierra Wireless, the leading IoT solutions provider, announced a definitive agreement to divest its Shenzhen, China-based automotive embedded module product line for US$165 million in cash.

The purchaser, Rolling Wireless (H.K.) Limited, is a consortium led by Fibocom Wireless Inc. of Shenzhen (Shenzhen Stock Exchange Code 300638).

“This divestiture enables Sierra Wireless to strengthen our focus and investment in our fully integrated IoT solutions that deliver high-value recurring revenue,” said Kent Thexton, President and CEO of Sierra Wireless. “This transaction will improve our balance sheet and allow us to expand our R&D centre in Richmond, British Columbia to accelerate our innovation in integrated IoT solutions and 5G modules, gateways and routers.”

With a strengthened focus on its higher-margin IoT Solutions business segment, Sierra Wireless will continue to target key industrial and enterprise markets in North America, Europe and the APAC region. The improved financial profile means that Sierra Wireless will be better positioned to address the broader multi-billion-dollar IoT solutions market opportunity.

The divested product line is part of the Company’s Embedded Broadband reporting segment. Sierra Wireless will exit automotive applications but will continue to invest in other product lines in its Embedded Broadband segment, specifically high-speed cellular modules typically used in Enterprise applications.

These retained products include 4G LTE and LTE-Advanced cellular embedded modules that are ordered in large volumes, as well as new industry-leading 5G modules that will be made available to customers from its retained business. Sierra Wireless’s 5G modules and gateways are expected to be available in Q4 2020, extending its broad portfolio of IoT solutions.

The sale of the automotive product line includes approximately US$19 million of cash and is subject to normal working capital adjustments at closing. The revenue for the automotive product line in 2019 was US$166 million. The Company will be providing additional information about the transaction on August 6, 2020, during its Second Quarter 2020 earnings conference call. The Company’s financial results for the Second Quarter of 2020 are expected to be in-line with consensus estimates of research analysts.

The automotive embedded modules are developed in China by Sierra Wireless and manufactured in China by outsourced contract manufacturers for sale to global electronics companies for integration into new vehicles assembled in China, Europe, and Mexico. No Canadian-based or U.S.-based employees, operations or assets will be transferred as part of this transaction.

Sierra Wireless expects that approximately 150 of its employees will become employees of Rolling Wireless. Approximately 120 of these employees are located in Mainland China. The other 30 are located in Europe or in the APAC region.

The transaction is expected to close in the Fourth Quarter of 2020 and remains subject to customary closing conditions, including approval from China’s Ministry of Commerce. The transaction has the support of the Sierra Wireless Board of Directors and is not subject to shareholder approval.

Rolling Wireless is owned 49% by Fibocom Wireless, a manufacturer and distributor of wireless communication equipment. The remaining 51% is owned by three leading investment firms based in China.

Jefferies Group LLC is acting as Sierra Wireless’ financial advisor. Blake, Cassels & Graydon LLP is acting as legal counsel to Sierra Wireless. Huatai Securities Co. is acting as financial advisor to Fibocom Wireless and Osler, Hoskin & Harcourt LLP is acting as legal counsel to Fibocom Wireless. Longview Communications and Public Affairs is acting as an advisor to both Sierra Wireless and Fibocom Wireless.