Britain's set-top box maker Pace acquires 2Wire for $420M

British set-top box firm Pace has agreed to acquire enterprise networking technology firm 2Wire for $420 million in cash.

Under the deal, Saltaire, UK-based Pace will buy 2Wire for $475 million in cash. Since 2Wire has $55 million in cash, the net purchase price is $420 million. The deal will extend Pace’s presence in the U.S. market with telecommunications customers, said Neil Gaydon, chief executive of Pace.

2Wire makes hardware such as digital subscriber line (DSL) residential gateways and software so that phone companies can manage their broadband service to customers. Among 2Wire’s top customers is AT&T, which will continue to work with 2Wire under Pace. 2Wire does not compete in the low-end market of providing DSL boxes for homes.

The deal requires shareholder approval and is expected to be completed in the fourth quarter. Upon completion, Pace will become the top provider of telephone residential gateway devices in the U.S. and the No. 3 provider worldwide. 2Wire is currently owned by a consortium of strategic and financial investors, including Alcatel-Lucent, AT&T, Telmex, Oak Investment Partners, Meritech Capital Partners and Technology Crossover Ventures. 2Wire has about 1,600 employees. It was founded in 1998 and raised about $199 million, though it hasn’t had a round since 2003. Together, including 2Wire’s employees, Pace will have around 3,000 employees.

Michael Pulli, president of Pace Americas, said in an interview that the companies don’t have customer overlap now, but in the long run they will likely see convergence of their businesses. 2Wire’s rivals include Motorola, Cisco, ActionTek, and Technicolor. Gaydon said, “This acquisition is a perfect fit for where we think the market is going.”