Fleetmatics Group PLC Soars on Acquisition By Verizon Communications

By Markets Fool.com

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Image source: Fleetmatics.

What: Shares of fleet management software provider Fleetmatics Group (NYSE: FLTX) surged on Monday after the company announced that it was being acquired by Verizon Communications (NYSE: VZ). At 11:30 a.m. ET, Fleetmatics stock was up 39%, while Verizon stock had declined by less than 1%.

So what: Verizon will pay $60 in cash for each share of Fleetmatics, valuing the company at roughly $2.4 billion. The deal is expected to close during the fourth quarter of 2016 following approval by Fleetmatics' shareholders. Fleetmatics' earnings call, originally scheduled for August 9, has been canceled as a result of the announcement, and the company has withdrawn its guidance for 2016.

Andres Irlando, CEO of Verizon Telematics, a subsidiary of Verizon, explained the reasoning behind the deal:"The powerful combination of products and services, software platforms, robust customer bases, domain expertise and experience, and talented and passionate teams among Fleetmatics, the recently acquired Telogis, and Verizon Telematics will position the combined companies to become a leading provider of fleet and mobile workforce management solutions globally."

Fleetmatics brings 1,200 employees and 37,000 customers to Verizon. Fleetmatics won't move the needle for Verizon, with just $285 million of revenue in 2015 compared to $131 billion for Verizon. But the telecommunications giant is looking for ways to diversify beyond its core wireless business, and Fleetmatics will help make Verizon a larger player in the fleet and workforce management solutions industry.

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Now what: The $60 price tag that Verizon is paying for Fleetmatics' shares is close to the stock's all-time high. Unlike many fast-growing software-as-a-service companies, Fleetmatics has been consistently profitable on a GAAP basis. The company is too small to add much to Verizon's bottom line, but it should provide a positive benefit immediately.

Verizon is paying a premium for the stock, shelling out about 8.5 times 2015 revenue. But the company clearly believes that adding Fleetmatics will help jump-start its efforts in the fleet management market.

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Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.