Israel-based Amdocs' acquisition of Canada's Bridgewater Systems for about $215 million to beef up its phone-billing software business amid surging mobile data traffic may trigger more such deals in the sector.
Bridgewater Systems, whose customers include Saudi Arabia's Etihad Etisalat (Mobily) and Verizon Wireless, provides software that reduces network congestion by offloading data traffic to Wi-Fi networks and helps carriers migrate to 3G and 4G.
Carriers are increasing looking at companies like Bridgewater to offer personalized products to leverage the explosion in mobile data, analysts said.
The spiralling growth in mobile data consumption made several Canadian mobile software companies such as Bridgewater, Sandvine Corp and Redknee Solutions Inc attractive acquisition targets.
"Bellweathers like Amdocs, Cisco and IBM are sitting on tons of cash and for them to buy niche solutions providers like Bridgewater makes absolute sense," said analyst Sameet Kanade of Northern Securities.
Amdocs had $1.16 billion in cash and equivalents as of March 31, according to Thomson Reuters data.
In Canada, companies like Redknee and Sandvine may be the next ones to be acquired, he said.
Last year, Tekelec, which helps phone companies enable services such as text messaging and surfing, snapped up Camiant to expand its reach in data management.
Shares of Ottawa, Ontario-based Bridgewater jumped 30% to C$8.16 in heavy trading on Friday on the Toronto Stock Exchange. The stock was one of the top gainers on the exchange.
The offer price of C$8.20 per share in cash represents a premium of 30% to Bridgewater's Thursday close of C$6.33.
Analyst Kanade of Northern Securities sees this as an opportunistic buy, since it is at a discount to Bridgewater's intrinsic value of about C$9 a share.
No material impact
Amdocs, which competes with Comverse Technology and Convergys Corp, said it does not expect a material impact from the acquisition on its non-GAAP earnings per share in fiscal year 2011 or 2012.
It may incur acquisition-related expense in fiscal years 2011 and 2012.
The deal will help Amdocs' customers to be creative with data plans, said First Analysis Securities Corp analyst Howard Smith, who sees it as a "positive small acquisition."
The deal, expected to be completed within 90 days, is valued at about C$128 million net of Bridgewater's cash as of March 31, said Amdocs, which counts AT&T and Bell Canada among its top customers.
It bars Bridgewater, which is being advised by Jefferies & Co, from seeking other bids and provides for the payment of a termination fee in certain circumstances.
"While the possibility of an additional bidder cannot be ruled out, we believe the current economic uncertainties and curtailment of spending by carriers may imply that other bidders may not follow suit," said analyst Kanade of Northern Securities.
The deal can provide the combined entity a solid position versus peers like OpenWave , Comverse and Tekelec-Camiant, analyst Daniel Meron of RBC Capital Markets said in a note to clients.
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