Japan is already iRobot's (NASDAQ: IRBT) largest international market, but the home-robot maker has much bigger plans to tackle the country of nearly 130 million people. Last week, iRobot announced an agreement to acquire the iRobot-related distribution business of Tokyo-based, privately held Sales On Demand Corporation (SODC).
iRobot's new Braava jet is driving growth in Japan. IMAGE SOURCE: IROBOT CORPORATION
The headline numbers
The transaction is expected to close in April for between $14 million and $16 million in cash, representing the equivalent of the book value of acquired assets (primarily inventory) at the time of the close.
The purchase should also contribute incremental revenue of roughly $20 million to $25 million next year and will expand iRobot's gross margin even after accounting for a one-time inventory fair value accounting adjustment. Based on generally accepted accounting principles, which includes accounting adjustments, one-time charges, and acquisition costs, the deal will have a dilutive effect on per-share earnings of between $0.25 and $0.35 next year. Then, starting in 2018, SODC should contribute incremental revenue, gross margin, and earnings to iRobot's consolidated results.
SODC, for its part, has served as iRobot's exclusive distribution partner in Japan for the past 12 years. And iRobot insists that SODC is "well respected by top channel partners," and that its "team has been instrumental in establishing iRobot as the leading consumer robotics brand among Japanese consumers and maintaining significant market share in an increasingly competitive region."
Sweating the details
Persistent macroeconomic headwinds in Japan have held back iRobot's overall growth in recent years, though not directly. Rather, because iRobot previously sold its products directly to international distributors like SODC, it was primarily hurt when those distributors faced pricing pressure in countries like Japan as they faced prolonged currency devaluation, and so had less cash to spend marketing those products in foreign markets.
Early last year, for example, iRobot was forced to
To be fair, those ads served their purpose well,
According to iRobot, "The acquisition will better enable iRobot to maintain its leadership position and accelerate the growth of its business in Japan through direct control of pre- and post-sales market activities including sales, marketing, branding, channel relationships, and customer service."
The move couldn't come at a better time. Following the
In the end, rather than funneling demand creation investments to an international third party as needed, iRobot has wisely opted to remove the middleman and directly seize control of its Japanese expansion. As sales in Japan continue to rebound, I think that's something with which iRobot investors should be more than pleased.
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