Chengdu Geeya offers to acquire UK set-top box vendor


UK-based set-top box manufacturer Harvard International (HI) is to be acquired by Chinese set-top and cable network infrastructure vendor Chengdu Geeya Technology, through its Hong Kong subsidiary Geeya Tech (Bidco). Bidco has recently been incorporated within Geeya, primarily to enable the £23m deal.

Harvard International, under its Goodmans brand, offers free-to-air (FTA) digital set-top boxes in the UK. It also supplies other consumer electronic products in Australia and has product development, procurement and logistical operations based in Hong Kong and China. Restructuring over the last three years has seen HI divest most other types of products to refocus on set-top boxes after sales contracted sharply in 2007.

Geeya's rationale for acquiring HI likely resides in its need for retail experience, and access to further distribution channels. Geeya is a Chinese manufacturer of digital TV equipment and has so far confined its operations to China, mainly within the cable market. It has three sources of revenue - infrastructure for headends, set-top boxes and professional software. Since it became public in 2009, it has been overwhelmingly dependent upon digital STBs, marginalising its reliance on other product ranges as a result. Following this strategic change it has become a profitable business, taking profits of RMB 90m (GBP 9m) over the previous two years.

However in the competitive Chinese market, Geeya hasn't significantly outperformed other vendors in volume terms: between 2005 and 2010, Chinese STB vendor, Jiangsu Yinhe, raised volumes from 100k to over 2m; while within the same period, Geeya only grew from 300K to 650K. Moreover, Geeya's growth between 2009 and 2010 has been its lowest -eight per cent. It's therefore not surprising that the firm may wish to grow beyond China; in order to do so however Geeya will need sales channels and product export experience that it currently lacks. The acquisition of HI affords Geeya precisely this extra-China reach.

HI mainly supplies digital free-to-air set-top boxes for markets in the UK and Australia. Financially, the past three years have shown consistent growth, culminating in 2011 profits of GBP 0.9m, athough generally, the last five years have been difficult for HI, and have been characterized by persistent net losses. Given HI's operating margin of 1.5 per cent, relative to Geeya's margin of 25 per cent, it is difficult to imagine that the acquisition is meant to capture an existing, robust revenue stream; the acquisition's value rests squarely with HI's existing presence in European and Australian FTA-STB markets.

More broadly, Geeya's acquisition represents one of the first instances of a Chinese STB manufacturer acquiring a Western manufacturer. Given Cisco's recent acquisition of DVN, and Motorola's acquisition of Beijin Gehua, the Geeya purchase stands out as conspicuous turning-of-the-tables. Although it would be premature to treat the Geeya deal as the start of Chinese-driven wave of acquisitions, there is little question that Chinese STB manufacturers will increasingly look beyond their national borders for opportunity; it is entirely conceivable that a portion of this expansion will be achieved through the purchase of smaller, Western STB vendors.

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