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Verizon: Fleetmatics Is A Great Acquisition

Summary

Fleetmatics acquisition gained little press, but price tag is nearly half that of Yahoo.

Verizon’s addition to its telematics portfolio makes strategic sense to me.

Lateral trade: consider Mix Telematics.

On Monday, August 1st, Verizon (NYSE:VZ) announced the acquisition of fleet telematics SaaS company Fleetmatics (NYSE:FLTX). The acquisition gained relatively little press. But the deal, priced at about $2.4 billion and representing a 40% premium to share prices last Friday, is half the size of the widely-covered and heavily-debated Yahoo acquisition, which will cost Verizon $4.8 billion in cash.

Credit: Safebillpay.net and Digitaltrends.com

Fleetmatics is a company that I have been following for a while. I believe it to be the most robust, market-dominant player in the fleet management business in the United States.

The company packs a powerful punch of steady and consistent subscriber base growth (25% compounded annual growth since 1Q14); robust EBITDA margins (27% to 38% range over the past nine quarters); and steadily increasing EPS (43% in 2015 vs. 2014, despite declining expected EPS growth of 14% in 1H16).

Source: D.M. Martins Research, using data from company's press release and SEC filings

Better yet, Fleetmatics' revenues are recurring, as the company's sales are subscription-based - i.e. no one-off hardware sales. This means that revenue upside is unlikely to be front loaded, but steady and less risky over a longer period of time.

Fleetmatics has only recently started to expand more...


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