ON Semiconductor Corp. (NASDAQ: ON – $20.25) said it has agreed to buy Quantenna Communications Inc. for $24.50 per share in an all cash transaction with an equity value of about $1.07 billion. The companies expect the deal to close in the second half of the year and ON projects it will immediately add to adjusted earnings per share. The purchase is expected to be funded from ON’s cash on hand and existing credit facility. Quantenna Communications designs, develops and markets wireless communication products enabling local area networking solutions worldwide. It also offers its products for home and small to medium-size businesses with networking applications including gateways, repeaters and set-top boxes. The purchase should fit nicely with ON’s existing product portfolio.
Shares of Phoenix-based ON represent an interesting long-term investment option. Despite the presence of macroeconomic headwinds that are likely to hurt performance in the coming year, the company’s highly differentiated power management products keep it in position to take advantage of the broadening Internet of Things market. Full-year 2019 earnings are expected at $1.86 per shares, down four cents from last year and $2.09 is estimated for 2020 before factoring in the Qauntenna purchase, thus providing for a reasonable forward valuation of 9.8 times earnings. The company continues to build content across multiple end-markets and can be considered a potential investment option for aggressive accounts with a long-term horizon.