Arris CEO Expects Smooth Integration of Pace

Arris and Pace wrapped up their $2.1 billion merger yesterday. The deal encountered some bumps during the vetting process, but now comes the hard (or harder) part – integrating the two companies and achieving the merger’s anticipated financial synergies.

However, Bob Stanzione, Arris’s chairman and CEO, believes that integration will be easier to achieve than the one Arris went through after it acquired Motorola Home in April 2014 for $2.35 billion.

“I think we’ll be able to move faster on this one than we did with Motorola Home,” Stanzione said in an interview. In the case of Motorola Home, Arris was not assuming the IT or the financial infrastructure, and had to build it all from scratch. Plus, there were some complicated transition service agreements in the Motorola deal that are not needed with the Pace merger.

Stanzione isn’t predicting when the Pace integration will be completed, but he does expect the “big milestones” to occur in the first half of 2016.

One area of early focus will be the combination of the sales teams. That’s already happening under the establishment of the company’s new executive team, with former Pace exec Tim O’Loughlin now in charge of North American sales, and Ron Coppock now running a new dedicated international sales organization.

“The first thing we’ll do…is combine the sales organizations,” Stanzione said. “We don't want there to be any confusion in front of the customers; we'll move most quickly on that." 

The longer-term focus will include backoffice integrations and the merging of product roadmaps where there are overlaps. Comcast, for example, sources X1 boxes from both Arris and Pace. Arris and Pace have also been supplying similar set-top products to AT&T.

“We will combine [set-top product lines,” Stanzione said. “But it will take time because we have to collaborate with customers…If they want us to manufacture two products for the next year, we'll manufacture two products for the next year." 

Those conversations just recently got underway due to gun-jumping restrictions that were preventing them before the deal was consummated.

Stanzione also acknowledged that overlaps in other areas will also force Arris to make some moves with respect to its employee base, which is now at about 8,000.

 “We have nothing to announce at this point,” Stanzione said in regard to that, but said Arris will update the market on those activities in February during its normal quarterly earnings call while also keeping employees up to speed.

“There are some overlaps and we're going to work through them as quickly as we can and keep everyone in the loop as to what our thinking is,” he said.

Though the mergers with Motorola Home and Pace aren’t apples-to-apples comparisons, Arris reduced its workforce by about 500 employees about two months after closing the Motorola Home deal.

As for the grander strategy behind the deal, Stanzione still believe it “gives us an incredible boost in scale” and the opportunity to grow internationally, particularly in markets like Australia, where Arris and Pace were working with different customers and can now combine those efforts.

“We’ll want to see both [the U.S. and international markets] grow,” he said. “But I think the opportunities for us to grow internationally are greater." 

And even though Arris has its hands full integrating Pace, don’t count out more M&A moves.

“We want to be prepared for that, we need to be prepared for that,” Stanzione said, noting that Arris closed the Pace deal with a strong balance sheet intact. “Any company that kinds of gets itself painted into a corner in this world and this environment that is fast moving will regret it."