Pace Micro Technology inked a conditional agreement yesterday to acquire the set-top box (STB) and connectivity solutions business of Royal Philips Electronics. 

The $135 million deal, which is subject to Pace shareholder approval and other conditions, would make Pace one of the world’s top-three set-top manufacturers. Once the deal is complete, Philips will have a 23 percent stake in Pace, in exchange for 70 million Pace shares.

Pace CEO Neil Gaydon, in a prepared statement, predicted that the deal would create a company with revenues of more than $1 billion in sales that would produce approximately 8.5 million STBs a year.

“There is a strong strategic fit from customer, product, geographic, culture and scale perspectives,” Gaydon said. “We have minimal customer overlap, and the combined group will have a significantly enhanced technological position.”

Philips’ STB and connectivity business unit has approximately 335 employees who are primarily based in France. The company sells set-tops to cable, satellite, IPTV and terrestrial service providers. As part of the transaction, Pace will be able to use Philips’ brand in retail distribution for the next three years.

Pace’s customers in the U.S. include DirecTV, Time Warner Cable and Bright House Networks, while overseas customers include BSkyB and BT.