Buying Groups Hopeful Control4/SnapAV Merger Bolsters Channel Against DIY Threat

SnapAV agreed to buy Control4 for $23.91 a share in an all-cash deal. Control4 filed its initial public offering in August 2013 at $16 per share. Its 52-week high share price was $37.62 in September in the week following CEDIA Expo; shares hit a 12-month low of $15.59 on Dec. 24. The purchase price represents a 40 percent premium over the Wednesday closing price of $17.12. Shares jumped 40 percent Thursday to close at $23.90.

Private equity investment firm Hellman & Friedman -- SnapAV’s majority shareholder since 2017 -- will invest additional equity, undisclosed, as part of the transaction and be the majority shareholder of the combined company. The transaction has been approved by the Control4 board, which is recommending that stockholders vote in favor of the deal, expected to close in the second half.

More than 1,200 employees of the combined entity will be led by SnapAV CEO John Heyman and an executive team of leaders from both companies. Control4 CEO Martin Plaehn will join the board of the combined entity, "helping to ensure a smooth integration of the businesses," said the companies.

The privately held SnapAV, a manufacturer and primary source of A/V, surveillance, networking and remote management products for integrators, has been scooping up companies along the way as it has built up its influence as supplier and distributor. Recent acquisitions include Autonomic, Visualint and SunBriteTV. The companies called the joining a “highly complementary combination” that will leverage the increased resources of the two companies to provide integrators with a “true, one-stop shop, offering a complete product portfolio of custom smart-home, control and automation solutions.”

ProSource CEO Dave Workman told us it’s easy to fall into a “fear situation” when two industry giants combine -- he ballparked annual revenue of the new entity at $700 million-$800 million -- and cited dealer concerns over the perceived control and influence of a company that size. “Instead of asking what can we do for you, will they now tell us what we'll do?” he said.

Based on Workman’s familiarity with both companies, he doesn’t see that happening and sees no reason why the deal won’t be a good thing for the buying group. “I know them both very well, and they’re two great companies coming together,” he said.

He remains cautious, knowing dealers will worry that they’re placing “too many eggs in one basket,” he said. Dealers naturally will have concerns over program pullbacks, he said. If that does happen, the market will find its equilibrium, Workman said. If the combined company “scrapes back” on dealer programs, the group will respond accordingly. “They’re not the only company out there,” he said: “Ultimately, the market will always give you choices.”

“It’s going to be a strong company,” HTSA’s Robbins said of the Control4-SnapAV combo, and a “viable competitor.” That’s not only in the traditional custom channel, but to the “Googles of the world who might want to be in this space.” Google and Amazon “have been disruptive in our space,” but so far, do-it-yourself smart home solutions haven’t proven to be “terribly effective or successful,” he said: “It’s shown to be a challenge for what we do to be done on a DIY basis.”

With combined resources, Control4 and SnapAV will be able to better promote the “do-it-for-me” message built around a professional integrator, said Robbins. “That’s what we’re looking to continue to sustain -- that customers see the value in hiring very qualified, well-trained specialists who have continued to elevate their performance,” he said. The investment involved shows the companies “are serious about the industry.”

Workman had similar views about the need for the specialty channel to differentiate against the DIY segment of the smart home market. Vendors have to continue to bring a value proposition against “the ever increasing capabilities” of DIY companies, he said. If the outcome of the merger is a combined company spending more on R&D to propel the integrator channel, it will be a good thing, he said. Robbins has no concerns about the transaction, he said: “You’ve got two really strong companies coming together and being able to share resources to make an even stronger research and development company." HTSA is “very bullish” on the prospects, he said.

Addressing the impact to competitors outside the two companies’ sphere, Robbins said, “The jury is out on that: People will find their niche in that regard.” In addition to having Control4 as a vendor member, Crestron and Legrand are HTSA members. On how the deal will affect their relationship to the group, Robbins emphasized the Nuvo whole-house audio aspect of Legrand’s business and said control company Crestron can hold its own. “I think they’re keeping their eye on the ball” with a “lot of really good things going on,” he said, citing Crestron’s upcoming third-generation operating system.

Details haven’t been shared, and for the time being, said Robbins, “it’s business as usual,” reflecting Plaehn's comments in his dealer letter. “It’s going to take a while for everything to play itself out: they have to feel each other out.” It appears much of the Control4 senior management will move to the new company, said Robbins. The companies plan to retain locations in Salt Lake City and Charlotte with an employee count of some 1,200 in the U.S. and abroad.

Bumps in the road are going to be inevitable, Workman said. One potential casualty is ProSource’s strong relationship with Araknis Networks -- which won networking company of the year last week at ProSource’s spring meeting -- and how that will mesh with Control4’s Pakedge networking product. “I imagine the best athlete will win,” he said: “there’s no reason to have both.” Control4’s Triad speakers and control products present no crossover issues, he said. Ultimately, the two are “very well-run companies” with similar philosophies and “heavy customer focus.”

It wasn’t clear Thursday how the transaction would affect the Azione Unlimited buying group, which for now, doesn’t list Control4 or Snap AV as vendor members. President Richard Glikes was attending a CEDIA event out of town and unavailable for comment.

The agreement includes a provision for Control4’s board, with the help of advisers, to conduct a 30-day “go-shop” process following the execution date of the definitive agreement, to actively “initiate, solicit, encourage and evaluate alternative acquisition proposals, and potentially enter into negotiations with any parties that offer an alternative acquisition proposal,” said the companies. Terms and conditions give Control4 the right to terminate the agreement to accept a better proposal, but there is no assurance that the “go-shop” will result in a superior proposal, they said. Control4 doesn’t intend to disclose developments surrounding the solicitation process unless its board makes an additional determination, which would require further disclosure.

Terms say either party can terminate the agreement if the deal isn’t complete by Nov. 8. Under certain circumstances, Control4 will be required to pay SnapAV a termination fee of $20 million; if it ends the agreement during the 30-day go-shop period and enters into a definitive agreement for an alternative acquisition, the termination fee will be $10 million. SnapAV will be required to pay Control4 $41 million if the agreement is terminated under certain circumstances.

Control4 posted a $2 million loss for Q1 vs. profit of $1 million in Q1 2018, it said in a Thursday financial release. Revenue for Q1 was $60.4 million vs. $59.1 million; it projected a Q1 revenue range of $61 million-$63 million on its February earnings call. The company canceled its earnings call scheduled for Thursday afternoon, citing the pending transaction. The company is also not providing revenue guidance for the current quarter.