Avigilon to Raise $100 Million, Who Will They Acquire?

In 2013, Avigilon raised $69 million and acquired two companies - RedCloud and VideoIQ. Now, Avigilon is raising $100 million more.

In this note, we review their financial reports and examine the strategic impact of this move.

First, Avigilon announced a new $75 million fund raise. The next day it was increased to $100 million with an option to go as high as $115 million.

Lots of Cash Already

Avigilon has lots of cash, even before this fund raising. As the Q4 2013 report declares:

"At December 31, 2013, we held cash and cash equivalents of $104.9 million (2012 - $49.9 million). During the year ended December 31, 2013, we generated cash flows from operations of $11.3 million (2012 - $12.3 million)."

It is hard to believe that Avigilon needs another $100 million on top of the existing $100 million to organically grow (even if they expand manufacturing, sales, etc.).

Nonetheless, shortly, Avigilon will have ~$200 million cash in the bank.

Rationale?

During the 2013 year end call, Avigilon downplayed acquisitions, suggested major ones in 2014 were unlikely but that they would continue to look for intellectual property or pieces of technology to complement their business, naming independently developed access control or analytics functions as two areas of potential.

And in the announcements for the fund raising, their explanation was rather laconic, with only the stock statement, "The Company intends to use the net proceeds from the offering for general corporate purposes and for potential strategic acquisitions."

Stock Impact

In the past 12 months, the stock has closed to tripled, reaching a market capitalization of $1.3 billion, though in the past 4 months, the price has leveled and modestly pulled back, as this chart shows:

So it may be a good time to raise money as they have a quite 'healthy' valuation.

Acquisitions?

We think acquisitions are the most likely target for this fund raising, as the amount being raised seems to be unnecessary for organic growth given their current cash position and operational position.

The challenge are: What companies make sense? How hard would it be to integrate even more diverse technologies / products?