Q&A Zebra-Motorola deal explained: The Internet of Things, rugged smartphones, and debt management
The news that Zebra Technologies had acquired Motorola's enterprise unit for $3.5 billion seemed to come out of the blue, but considering how closely the companies have worked together for years, it wasn't all that surprising.
This month, Zebra purchased Motorola's enterprise unit for $3.5 billion, comprising of $200 million in cash and $3.25 billion of debt to fund the deal. The Lincolnshire, Illinois-based firm specializes in barcode, receipt, kiosk, and RFID printers and supplies for businesses, whereas Motorola's enterprise unit produces rugged mobile devices for the corporate market as well as barcode scanners for the global market.
I caught up with Philip Gerskovich, the Senior Vice President of New Growth Platforms at Zebra, to discuss the acquisition and how it fit within the company's future business plans, the Internet of Things, and how Zebra would support the financial burden of the buy.
Philip Gerskovich joined Zebra in 2005, becoming the SVP of new growth platforms in 2011. Previously, he has worked in varying executive roles at Kodak, Data General Corp., Dell, and IBM. Gerskovich holds a degree in computer engineering from the University of Illinois.
Let's get started.
What piqued Zebra's interest in purchasing Motorola Solutions' enterprise business?
For years people have talked about bringing these two industry leaders together. Both companies got started building bar code products: Zebra printed the barcodes and Motorola scanned them. Over the years, we have worked side by side serving customers and partners, particularly those in the retail, manufacturing, and transportation and logistics industries. When Motorola decided to focus exclusively on their Government business, we were glad we were able to reach an agreement. Together, we want to be the first call a CIO makes for help in creating a smarter, more connected enterprise.
The merging of Zebra's RFID technology and Motorola's mobility makes sense, but is the financial burden — debt of $3.25 billion to fund the deal — going to be an issue for Zebra's profitability in the near future?
Under the terms of the agreement, Zebra will acquire the Enterprise business from Motorola Solutions for $3.45 billion in an all-cash transaction. The Company expects to fund the transaction with approximately $200 million of available cash on hand and $3.25 billion to be raised through the issuance of new debt. The funding commitment also includes a $250 million revolving credit facility, which should provide ample liquidity for the combined business.
Leverage will be approximately 5x adjusted LTM EBITDA at the time of closing. With strong free cash flows, we believe we’ll be able to de-lever relatively quickly. We’re targeting a leverage ratio of less than 3x, which we expect to achieve in about three years.
Do you anticipate any hurdles in merging current Zebra operations with the newly acquired staff, business, and product cycles?
While any integration of this size will impose challenges, the fact that our two companies have worked side by side together for years working with many of the same partners and customers should make the integration easier. Also, both Zebra and the Motorola Solutions’ Enterprise business managers are globally recognized as leaders within the industry. The Enterprise business brings with it key development, sales, and operations executives and Zebra also has a strong leadership team who have successfully worked closely together for a number of years. We are confident we will have the right, critical managers to achieve growth.
How critical, if at all, is Zebra's Zatar program to the integration of both businesses?
The Internet of Things means everyday objects will be connected to the internet. These capabilities will allow organizations to have real-time intelligence about all of their critical assets: what they are, where they are, and what is their condition. Zebra and Motorola Solutions are leaders in critical Internet of Things technologies like RFID, wireless networking and cloud based internet of things software like Zatar. Zatar is a core component to our IoT strategy by giving a common framework to build applications.
We believe we will be the leader in deploying Internet of Things applications for enterprises.
Are there any particular Zebra projects that Motorola's assets will benefit? If so, how?
Motorola’s new lines of Android based rugged devices can run all standard Android applications but gives them day-long battery life, waterproof droppable cases, and integrated bar code scanners. In the past, these types of rugged devices would have thousands of applications available; now with the advent of Android based designs, we have millions of applications that can run on our devices. These devices will enable mobile workers to make use of Internet of Things data in their daily workflow.
Where do you see Zebra in the next five years?
There are two key trends driving this space: mobile workers and the internet of things. Workers in every organization are on the move. And these mobile workers need tools to allow them to use cloud based applications and feed those applications with real-time information about assets in their environment. Motorola Solutions has been the leader for many years in supplying rugged smart mobile computers used by workers on the move. And Zebra has been a leader in bar codes and RFID. Together we will be a much larger company that is the leader in smart mobile computing and the internet of things.
The takeaway? Zebra believes the Internet of Things is going to be a critical force in the future enterprise workspace, and Motorola's enterprise unit provides the mobile force — through rugged enterprise devices — which will be a catalyst for IoT adoption. Zebra hopes that taking on these mobile assets will secure its place as a leader in IoT deployment for enterprises in the future — and the Zatar program is going to be the key to success as the glue that binds the two firms and their businesses together.