SGH To Acquire Stratus Technologies

SMART Global Holdings, Inc. (SGH) announced that it has entered into a definitive agreement with affiliates of Siris Capital Group, LLC, to acquire Stratus Technologies, a global player in simplified, protected, and autonomous computing solutions in the data center and at the Edge. Under the terms of the agreement, SGH will pay $225 million in cash at closing and an earn-out payment of up to $50 million, based on the gross profit performance of the Stratus business during the first full 12 fiscal months of Stratus following the closing.

Consistent with the Company’s existing lines of business, Stratus delivers differentiated technology solutions to specialty end markets. In particular, the addition of Stratus’ high-availability, fault-tolerant computing platforms, software, and services will expand SGH’s Intelligent Platform Solutions (IPS) business to better serve Stratus and IPS customers worldwide.

Strategic and Financial Benefits

• Diversified solutions in the data center and at the Edge: Stratus’ high-availability and fault-tolerant platforms, software, and services expand IPS’ technology offerings.
• Large-scale global customer base: Stratus has a strong global customer base, including more than half of the Fortune 100 companies.
• Differentiated technology: Stratus offers differentiated products and services, consistent with SGH’s focus on providing value-add solutions for specialty end markets.
• Comprehensive services: Stratus’ services capabilities and infrastructure will result in adding more than $80M of higher margin, recurring revenue for IPS.
• Strong financial profile expected to be immediately accretive: The transaction is expected to be immediately accretive to gross margin, non-GAAP EPS, and free cash flow.

Transaction Terms and Financing

Under the terms of the agreement, which has been approved by the boards of directors of both companies, SGH will make an initial cash payment of $225 million upon closing. Additionally, Stratus equity holders have the potential to receive an earn-out payment up to $50 million based on the gross profit performance of the Stratus business during the first full 12 fiscal months of Stratus following the closing of the transaction, payable in cash, ordinary shares of SGH, or a mix of cash and ordinary shares of SGH (at SGH’s election). The transaction is subject to requisite regulatory approvals and satisfaction of customary closing conditions. The transaction is not subject to any financing contingency. SGH exited its third fiscal quarter with cash and cash equivalents of $387 million and an additional $250 million revolving credit facility available for use.

Following the close of the transaction, which is expected to occur in the second half of calendar year 2022, SGH expects to incorporate the Stratus brand and trademarks into the SGH portfolio of businesses and will operate Stratus under its Intelligent Platform Solutions Group.

Craig Resnick, ARC Advisory Group, commented, "This acquisition should prove to be positive to Stratus' customers, partners, and employees, with Stratus maintaining its brand, solutions portfolio, partnerships, channels and team while also having access to SGH's technology to leverage into its current and future offerings. It also enables Stratus to maintain its status as an independent  leading provider of autonomous computing solutions for the data center and the edge, which is critical to a company that has a strong network of partners who are also leaders in their respective industries."