Another one from the broadcast technology consolidator - after their acquisition of Scopus Video last year, Harmonic has broadened their scope of activity with the acquisition of Omneon.

The company has traditionally provided encoding and transmission solutions for cable, broadcast and VOD markets. With the acquisition of Omneon, they have now extended themselves along the video workflow value chain into production, processing and storage of video content as well.

The deal closed at $274million in a 70% cash deal. Omneon’s 2009 revenues were $105 million.

I think Harmonic’s statement pretty much says it all – what we are seeing is the convergence of content creators and media delivery service providers.

A large part of it is driven by the requirement for ubiquitous delivery of content i.e. TV, mobile, computer over a range of networks i.e. cable, satellite, terrestrial, mobile, fibre. Instead of sitting by and seeing their margins reduced by competition from smaller encoding technology providers, the firm is increasing their ownership of the content flow chain and providing a more integrated and diverse solution.

Omneon had filed for an IPO in Feb 2007. That was on the back of 2006 revenues of $60 million with $6 million in net income. They withdrew the IPO filing in March 2009 citing ‘current market conditions’. The financials reported then were 2008 revenues of $88 million and a net loss of $2.1 million. Search as I might, I couldn’t get Omneon’s profitability levels for 2009. Sill a revenue multiple of 2.6x is nothing to scoff at either – its is slightly above the average for the sector.

There are variations of course.

Scopus was acquired for a revenue multiple of 0.8x. But then interestingly enough another one of Harmonic’s acquisitions, Rhozet, which enabled their entry into transcoding solutions for Internet and mobile video in 2007 was at a revenue multiple of 10x.

Harmonic has grown inorganically. At the end of the day the M&A exercise is driven not just by bolt-ons to grow the top line while the firm feels the pressure on margins but also to consolidate the solution offering in various sub-sectors and bargain better margins.