RBC Sees 4 Technology Buyout Candidates

By Lee Jackson Updated Jan 13, 11:56AM EST · Published Mar 15, 10:45AM EDT

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RBC Sees 4 Technology Buyout Candidates — © Thinkstock

It happens every year, and 2016 won’t be any different. Larger companies looking to add growth in addition to that of the organic or internal variety scan the field for purchases and acquisitions that are easy to bolt on and could add returns in a timely fashion. This year the process may even speed up some as the market sell-off that happened through the first two months may have already put some companies in the sights of acquirers despite the recent market rally.

In what is a yearly and very all-encompassing report, the analysts at RBC again go through every sector looking for possible takeover candidates. Last year the company’s takeover screens yielded 29 takeouts that were eventually acquired over the following 12 months. The most popular area was software and services, which yielded a total of five deals. So we start this year’s coverage with four companies from that sector on the RBC watchlist that look promising.

AVG Technologies

Many of our readers may very well use the free software the company provides for computer security. AVG Technologies N.V. (NYSE: AVG) is an online security company providing leading software and services to secure devices, data and people. AVG’s award-winning technology is delivered to users worldwide.

AVG’s Consumer portfolio includes Internet security, performance optimization, location-based and phone control services and personal privacy and identity protection for mobile devices and desktops. The AVG Business portfolio — delivered by managed service providers, value-added-resellers and other resellers — offers IT administration, control and reporting, integrated security and mobile device management that simplify and protect businesses.

The stock trades at 7.4 times enterprise value (EV) to EBITDA and with gross margins of 85%. These are crucial metrics that the RBC team uses when looking for potential takeover candidates. AVG also boasts EBIT margins of 17%.

The Thomson/First Call consensus price target for the stock is $27.03. The stock closed trading on Monday at $19.84 per share.
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Fleetmatics

This is a lesser known company that may draw the eye of a bigger suitor. Fleetmatics Group PLC (NASDAQ: FLTX) is a leading global provider of mobile workforce solutions for service-based businesses of all sizes delivered as software-as-a-service (SaaS). Its solutions enable businesses to meet the challenges associated with managing local fleets and improve the productivity of their mobile workforces by extracting actionable business intelligence from real-time and historical vehicle and driver behavioral data.

The company’s intuitive, cost-effective Web-based solutions provide fleet operators with visibility into vehicle location, fuel usage, speed and mileage and other insights into their mobile workforce, enabling them to reduce operating and capital costs, as well as increase revenue. An integrated, full-featured mobile workforce management product provides additional efficiencies related to job management by empowering the field worker and speeding the job completion process — quote through payment. As of December 31, 2015, Fleetmatics served approximately 35,000 customers, with approximately 709,000 subscribed vehicles worldwide.

The company trades at 14.3 time EV to EBITDA and sports a 69% gross margin figure along with a 14% EBIT margin.

The consensus price target for Fleetmatics is posted at $55. The stock closed Monday at $39.19 per share.
MicroStrategy

This is another top company and it has continued to post outstanding earnings. MicroStrategy Inc. (NASDAQ: MSTR) is a leading worldwide provider of enterprise software platforms. The company’s main business goal is to provide enterprise analytics, mobility and security platforms that are flexible, powerful, scalable and user friendly.

Last year the company released a huge update to MicroStrategy 10. The release included hundreds of new and improved features and a wide range of performance enhancements across the product platform. For the first time MicroStrategy’s analytics platform marries enterprise analytics, mobility and security with the flexibility and ease of use desired by many business users today. MicroStrategy 10 satisfies the needs and requirements of many information technology (IT) departments, and the company thinks that business users will enjoy this powerful and very agile solution.

The stock trades at 8.9 times EV to EBITDA. It has an outstanding 81% gross margin number and posts a stellar 25% EBIT margin.

MicroStrategy has a consensus price target of $208.80. Shares closed most recently at $168.04.

Qualys

This company has often been mentioned as a potential takeover target. Qualys Inc. (NASDAQ: QLYS) is a pioneer and leading provider of cloud-based security and compliance solutions with over 8,800 customers in more than 100 countries, including a majority of each of the Forbes Global 100 and Fortune 100.

The Qualys Cloud Platform and integrated suite of solutions help organizations simplify security operations and lower the cost of compliance by delivering critical security intelligence on demand and automating the full spectrum of auditing, compliance and protection for IT systems and Web applications. Founded in 1999, Qualys has established strategic partnerships with leading managed service providers and consulting organizations and was recently added to the S&P small cap 600 index.

Qualys trades at 12.3 tine EV to EBITDA, as well as has gross margins of 79% and 15% EBIT margins.

The consensus price target for the shares is posted at $31.38. The ended trading on Monday at $25.59 per share.
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While there is no guarantee that any of these companies get purchased, they all stand out on their own very strong metrics. While only suitable for aggressive growth accounts, they make good sense as a takeover candidate or as standalone entities.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.