It’s not a world beating price, but shareholders of Intrinsyc Technologies (Intrinsyc Technologies Stock Quote, Chart, News TSX:ITC) should take the offer from Lantronix (Lantronix Stock Quote, Chart, News Nasdaq:LTRX) says Echelon Wealth Partners analyst Gianluca Tucci.
This morning, Intrinsyc announced it had reached a deal with US-based IoT security firm Lantronix the will see the latter pay (US) $27-million for the former in a cash and stock deal that values ITC at $1.68.
“This transaction achieves our goal of increasing shareholder value by accelerating our strategic growth plan as we gain immediate scale and the resulting benefit of greater operational efficiencies through this transaction. This arrangement also allows our investors exposure to continue to participate in the IoT marketplace while at the same time offering a measure of liquidity to shareholders,” said Daniel Marks, chairman of the special committee of the board of directors of Intrinsyc.”
Tucci who had a “Speculative Buy” rating and a one-year price target of $2.60 on Intrinsyc Technologies acknowledges that this buyout falls far short of it, but says this is an acceptable outcome for shareholders given the current climate.
Based on yesterday’s closing prices and exchange rate, the total consideration amounts C$1.68 per common share and equates to a 27.9% premium of ITC’s 10-day VWAP,” the analyst noted. “The transaction is subject to the approval of 2/3 of shareholders and we expect the vote to be held no later than Q120. While we are disappointed with the implied valuation relative to our 12 month PT, we acknowledge the current difficult market environment for Canadian small-cap tech companies. Furthermore, we see the potential of further upside post-closing as promising as the share component provides ITC holders continued exposure to the growing IoT segment in a larger and more scalable platform. The deal values ITC at 0.9x/14.8x/41.2x 2019 EV/Rev, EV/EBITDA, and P/E, respectively, versus its peer group averages of 1.9x/13.0x/20.4x, respectively. The deal is accretive from the position of LTRX where it currently trades at 1.2x/16.9x/21.1x, respectively.
In a research update to clients today, Tucci changed his rating on the stock to “Tender” from “Speculative Buy”. The analyst broke down how the new combined entity would fare from a competitive standpoint.
“LTRX engages in the provision of secure data access and management solutions for internet of things. It operates through the following product lines: Internet of Things (loT), Information Technology Management, and Other. The loT provides network connectivity and is designed to enhance the value and utility of machines. The Information Technology Management includes console management, power management, and keyboard video mouse products. The Others consists of non-focus or end-of-life products. The company was founded in June 1989, is headquartered in Irvine, CA, carries TTM Revenue/EBITDA of $46.9M/$1.3M, respectively, has a $84.2M/$65.9M market cap and enterprise value, respectively, and trades on Nasdaq.This transaction brings together Intrinsyc’s advanced technology solutions that enable the creation and commercialization of intelligent connected devices with Lantronix’s growing IoT platform to expand its product portfolio and market opportunities. LTRX and ITC both carry YTD/2-Yr/5-Yr absolute returns in its stock of 15.0%/84.7%/71.6% and -2.2%/-14.6%/37.8%, respectively,” the analyst added.