Test and Measurement: Electro Rent's $323.4M purchase by equity firm draws scrutiny

Test equipment reseller Electro Rent has agreed to be acquired by Platinum Capital for more than $323.4 million, drawing the ire of shareholder litigation firms claiming shareholders aren’t getting a fair shake in the deal. Electro Rent, which sells new test equipment as well as providing equipment rentals and leases, has seen its revenue and profits fall since a sales agreement with Keysight Technologies ended last year. The proposed deal move would make it a privately held, wholly owned subsidiary of the investment firm.
In a letter to shareholders last October, Chairman and CEO Daniel Greenberg, and President and COO Steven Markheim, who has since been named CEO, acknowledged the company was struggling after the sales agreement with Keysight came to an end. Total revenue and profits were down markedly, and Greenberg and Markheim wrote that “our results for the first quarter of fiscal 2016 reflect a time of transition for Electro Rent. As we anticipated, revenue was impacted by a significant reduction in new equipment sales resulting from the end of our agreement with Keysight Technologies. We have developed new reseller relationships with Anritsu and Rohde & Schwarz, among others, which will allow us to continue providing our customers with a wide range of technical and financial choices. While we expect it will take time to rebuild new equipment sales, we think this area of our business will be valuable to Electro Rent’s long-term future.”
In its most recent quarterly filing in April, Electro Rent said “sales of equipment and other revenues decreased by 47.1% to $42.5 million from $80.3 million primarily due to a decrease in new equipment sales of $38.1 million as a result of the expiration of the Keysight reseller agreement on May 31, 2015.” Net income was down 52.7% to $5.7 million from $12 million during the same period last year.
The Electro Rent sale to Platinum Equity was announced Tuesday, and since then a flock of law firms have announced plans to investigate the sales fairness to stockholders. Shareholder litigation firms that have said they will examine the deal include Kahn Swick & Foti, Pomerantz, Brodsky and Smith, Levi & Korsinsky, Ryan & Maniskas and Wolf Popper, among others.
Electro Rent’s stock traded under $11 per share for most of last year and under $10 per share for most of this year so far, at times declining to less than $8 per share. The deal would pay shareholders $13.12 per share, and news of the arrangement sent Electro Rent’s stock soaring from around $10 to $13. In announcing their investigations, several of the firms noted an analyst recently set a target price of $15 per share. Partner Carl Stine at Wolf Popper said in a statement that “clearly, Platinum Equity is taking advantage of the fact that Electro Rent’s chairman plans to retire in July 2016 and wants to sell now, even if it’s a bad price.” Greenberg and a family member who hold 29% of the company’s outstanding shares have already agreed to vote in favor of the sale, according to Platinum Equity. Markheim would stay on as CEO after the Electro Rent sale to Platinum Equity, along with Allan Sciarillo, who was recently named CFO.
In other test news this week:
• National Instruments and Hewlett-Packard Enterprise are collaborating on pre-tested “big analog data” solutions specific to the needs of engineers and researchers, based on NI’s DataFinder software and HPE Moonshot Systems for a combination of hardware and software solutions aimed in part at gaining insight for “internet of things” applications and sensor data.
“With the IoT and the emergence of more connected systems, our customers are collecting more data than ever before,” said Eric Starkloff, EVP of global sales and marketing at NI, in a statement. “By analyzing more of their data in a reliable and accurate way, our customers can better document the results of their tests and take actionable steps to improve the efficiency and designs of their applications.”
• EXFO has launched new 100G optical transport network multichannel testing to support the development of 100G OTN switches; the tester is said to validate up to 80 channels simultaneously and is part of the company’s ongoing focus on testing support for the 100G communications network.
• GL Communications released the latest version of its protocol simulation and conformation test tools within its Message Automation and Protocol Simulation platform.
• Keysight Technologies’ calibration lab in Korea is expanding its services and now has Korea-specific calibration certification, the company reported. The center previously focused on Keysight equipment servicing, but is expanding its offerings in response to customer demand and now has Korea Laboratory Accredication Scheme calibration certification, according to Keysight.
• Service assurance company MYCOM OSI received a number of awards in recent weeks, including a mobile infrastructure innovation award this week from Global Telecoms Business for the company’s work in establishing a “services-driven super network operations center” with Vodafone India. The company’s solutions also gained recognition in big data and analytics, and for enabling improved customer-centric operations. MYCOM’s global head of marketing, Ian Meakin, said the awards are a reflection of the company’s work to integrate customer, network and service data while leveraging analytics and automation.