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Imperial Says Verizon-Fleetmatics Deal Should Have Come As No Surprise

Imperial Says Verizon-Fleetmatics Deal Should Have Come As No Surprise - FLTX, Verizon Communications Inc. NYSE:VZ

Verizon Communications Inc. VZ has inked a definitive agreement to purchase FleetMatics Group PLC FLTX for $60 per share. Imperial Capital’s Jeff Kessler downgraded the rating on FleetMatics from Outperform to In-Line, while raising the price target from $50 to $60.

The deal is 40 percent higher than the closing price of FleetMatics’s shares on July 29 and values the company at $2.4 billion.
“Our simple acquisition model using declining historical growth rates assumes that even if Verizon was to hold on to the FleetMatics business for 5 years, they could realize an internal rate of return (IRR) between 21-23%,” analyst Jeff Kessler mentioned.

Deal Not Surprising

The transaction does not come as a major surprise, especially in view of FleetMatics’s recent share price and the higher valuation that Verizon placed on the deal.

Related Link: How Verizon's Recent Purchases Prove It Is Subtly Taking Over The World

“We believe that this acquisition will enable Verizon to become a bigger and more important participant in the connected-vehicle segment, and add advanced fleet management solutions to its suite of solutions,” Kessler added.

Another bidder for FleetMatics may emerge, since the price being offered by Verizon does not represent an excessively high valuation for the former company, which is a leading provider of fleet management SaaS and has been generating more than 20 percent growth with gross margins of 75 percent, the analyst stated.

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DateFirmActionFromTo
Aug 2016Imperial CapitalDowngradesOutperformIn-line
Aug 2016BairdDowngradesOutperformNeutral
Jun 2016Morgan StanleyInitiates Coverage onOverweight

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