Computacenter PLC (LON:CCC) shares gained on Wednesday after UBS upgraded the stock, citing the acquisition of US IT firm FusionStorm.
The IT infrastructure services provider revealed on Monday that it has agreed to buy FusionStorm for an initial cash consideration of US$70mln and a deferred US$20mln in cash, depending on the financial performance of the business.
READ: Computacenter still experiencing buoyant market conditions
Computacenter will also inject US$45mln into FusionStorm to refinance existing facilities.
UBS raised its rating on the stock to ‘neutral’ from ‘sell’ and raised its target price to 1,285p from 1,255p.
“FusionStorm fits with the strategy expressed at April's capital markets day when management expressed a desire to have US product fulfilment capabilities to complement the existing managed services offering it has there to serve a handful of its larger European clients,” UBS said.
“It sees a £50mln incremental sales opportunity from these clients alone to add to FusionStorm's £450mln run-rate, plus a similar amount again from better serving FusionStorm's existing 80-90 enterprise clients.
“A 10-11x trailing EBITDA multiple is a similar price to CCC although with 95% of its sales coming from product and no managed services capability, we see FusionStorm today as a lower quality business.”
FusionStorm to be earnings accretive
UBS said in a call to discuss the deal, the FTSE 250's company's management indicated that FusionStorm would be “mid-single-digit” accretive to earnings in 2019.
The investment bank added 6% to its earnings per share estimates to reflect the contribution from FusionStorm and the acquisition of Dutch business Misco Solutions, which was announced last month.
“CEO (Mike) Norris sees the US market as less sophisticated in some ways than Europe, with many local players present but few pan-national providers and few offering managed services alongside product fulfilment,” UBS said.
“Some system investments will need to be made and FusionStorm has been somewhat capital-restrained, limiting its ability to invest in some product relationships.”
Computacenter acquisition record 'mixed'
The bank said Computacenter acknowledged FusionStorm was “perhaps a bit too skewed” toward the West Coast than it would have initially liked but after searching for the last 12-18 months for an acquisition in the US, it was one of six companies it seriously evaluated as a target.
UBS noted that the company’s acquisition record is mixed with Germany's Compunet more successful than France's TopInfo, so there are some risks associated with the FusionStorm takeover.
Shares rose 1.3% to 1,297p in mid-morning trading.