In what may be the smartest acquisition ever in the home-technology channel, leading smart-home manufacturer Control4 (Nasdaq: CTRL) has acquired Pakedge, the No. 1 brand of networking gear among CE Pro 100 home-technology integrators.

The synergies are clear to anyone with the vaguest understanding of the home-technology integration market:

1. Control4 makes mid-market systems for home automation and multiroom audio/video distribution.
2. Pakedge makes robust networking gear optimized for smart homes.
3. Both companies sell directly to independent dealers who sell, install and support connected-home (and commercial) systems.
4. Both firms are tops in their respective categories among CE Pro top 100 dealers.
5. Most dealers who install custom home-control systems like Control4 also spec, install and support the network infrastructure as well.
6. Pakedge has about 1,700 independent dealers, of which 560 are Control4-certified dealers, potentially adding 1,100 new customers to Control4's 3,100 dealers in North America.

A couple of weeks ago, when Control4 announced its new EA Series home controllers, CEO Martin Plaehn told CE Pro that Control4 was more of an infrastructure provider rather than a smart-home device manufacturer.

To that end, Pakedge makes a perfect partner.

“We now have Pakedge joining the family with networking solutions that are really designed to scale,” says Jeff Dungan, senior VP, supply chain and business development for Control4. “Networking is the foundation — making sure everything in the home communicates well together. Especially as there’s more downloadable content, more high-definition streaming services, the network becomes even more critical.”

Control4 paid about $32.7 million in cash for Pakedge, which had approximately $18.5 million in sales in 2015. Control4, which reports 2015 earnings today, had revenues of $120 million for the nine months ended Sept. 30, 2015. Control4 expects the acquisition to contribute to revenue growth, and to be accretive to both gross margin and EPS on a non-GAAP basis for the full-year 2016. Pakedge adds about 80 employees to Control4’s original 460 staffers for a total of about 540.

(UPDATE from earnings call 2/4/16: Pakedge had gross margins above 50% and net income “slightly above” $1 million in 2015. Revenues were up only slightly from 2014 overall. About 10% of Pakedge's business is commercial. Pakedge evidently was not being “shopped around.”)

Control4 has been vocal about its desire to grow through acquisitions. Last year, it purchased Leaf, a manufacturer of high-performance A/V-distribution products, for $9 million. A few months earlier, it acquired home automation software partner Extra Vegetables for about $900,000.

Control4 & Pakedge: A Beautiful Marriage

Control4 and Pakedge mesh well in many ways, starting with their complementary products. Control4 makes smart-home systems for controlling lights, thermostats, motorized shades and many other devices in the home and enterprise. The company also make A/V distribution systems that deliver high-resolution audio, high-definition video, intercom and VoIP communications, and HD video surveillance throughout the premises … all the while communicating two-way with cloud services.

All of this functionality screams for a sturdy network with quality of service, designed specifically for multiroom A/V streaming and remote network management. That’s what Pakedge has offered for a dozen years.

While Cisco and others specialize in enterprise-grade networking solutions, only a handful of companies like Pakedge focus on the home-technology channel, serving manufacturers and integrators that won’t compromise on network performance – a critical foundation of the smart home.

High-performance home-networking solutions can cost well into the thousands of dollars, but the category has nevertheless enjoyed strong growth in the home technology channel. Among CE Pro top 100 dealers, home networking and surveillance cameras have been the top two fastest growing categories for the past few years.

“We’ve always been dedicated to this channel.” – Viktor Pak, Founder and CEO of Pakedge

Pakedge’s top competitors in the channel include Luxul, SnapAV (Araknis networking products and OvrC remote management service), Ruckus, Ubiquiti and to some extent power-management companies like Panamax (Blue Bolt) and network monitoring providers like Ihiji.

Currently, Control4 sells Luxul and Ruckus products through its e-commerce portal, and starting today dealers can buy Pakedge there as well.

The company will continue to support all three partners, each of which integrates with the Control4 ecosystem.

When Plaehn speaks about networking products “integrating” with Control4, he says that at the basic level, “their configurations are compatible with the way we want to work with IP networks.”

On a deeper level, though, “when the software taps into our open API, you can get real-time information from our system or from our cloud to help understand what’s going on in the network at any given time,” Plaehn says. “Pakedge's BakPak [cloud service] not only sees the networking equipment but also the Control4 equipment and everything that’s connected to it – every device.”

He adds, “This is a cohesive platform. We were two teams; now we’re going to be one team.”

Pakedge Gets a Bigger Stage

Pakedge founder Victor Pak, who launched his networking business a dozen years ago to serve the A/V integration channel, says he knew what he had right away.

“Even within a year of starting, we were approached to be acquired,” he tells CE Pro. “In the last three years, we’ve been doubling down on investment. We’ve always been dedicated to this channel.”

He adds, “We have 10 times more developers than Luxul and SnapAV combined.”

The tipping point, he says, came last year when the entire ecosystem of IT and the Internet of Things (IoT) came together and Pakedge had all of the elements in place to virtualize the network.

“We can see everything on the network,” says Pak.

Pakedge also can heal the network using its Connect+ platform, incorporating proprietary “artificial intelligence-based algorithms” to detect, diagnose, self-repair and resolve network problems.

As the company puts it:

Pakedge virtualization technologies enable network devices, whether within a single network or across multiple networks, to be uniquely grouped and managed in new ways. Pakedge advanced software, such as Pakedge Zones, creates new networking capabilities for prioritizing network use for audio, video, communication, security, bulk-data and management applications. The cloud-based management technology, BakPak, enables remote management and maintenance. The Pakedge platform-architecture approach enables scalable and tightly defined integration with third-party devices from many manufacturers, similar to how Control4’s architecture enables third-party products to integrate with its platform.

“We said, ‘This technology deserves a bigger platform, a bigger microphone. Control4 is the perfect partner.’”

UPDATE from the Control4 2015 earnings call 2/4/2016

Analyst/Investor Question:

My first question is for you, Martin. I wonder if you could just give us some examples of the kinds of installations where it sounds like Pakedge is a specialized type of networking provider as opposed to many big household names we’ve heard of. So what drives the overlap from that to traditional Control4, and what did they do that’s special in the home automation context?

So, several things. The roots of Pakedge are in optimizing wired and wireless networks for multiple types of traffic especially those types of traffic that involved audio and video, whether that is streaming audio music locally within the house or from a streaming service, whether that’s streaming video within the home or from a video network service, and even including surveillance cameras for both residential applications and business applications. Layering on top of that type of traffic, they have technology that automatically prioritizes quality of service and responsiveness for low latency applications such as Voice over IP, Telephony and within home intercom audio and video communication. And so, with that foundation that’s their heritage they have very deep firmware that interoperates across the various components of routers, switches and access points and power distribution management. They tie that to their cloud service which provides remote management by the local dealers and home owners. And it deeply integrates with Control4 via our open API so that not only can the Pakedge technology see the entire traditional network within the home, but they can also see what is connected to the home automation system whether that’s IP driven or ZigBee or other forms of communication.

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