Why LTX-Credence Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of LTX-Credence  (NASDAQ: XCRA  )  rose more than 28% Friday after the semiconductor test equipment specialist announced it has agreed to acquire the Multiteste and Everett Charles Technologies businesses of Dover (NYSE: DOV  ) . Shares of Dover were little changed on the news.

So what: On one hand, the $93.5 million deal is a relatively small one for Dover, which currently boasts a market cap around $15 billion. By contrast, this significantly boosts the size of LTX-Credence, whose market cap currently sits at just $256 million even after today's pop. Then again, as I noted last week when LTX shares plunged following its disappointing fourth-quarter earnings report, the tiny company also boasted around $124 million in cash on its balance sheet at the time, good for over 60% of its entire market value.

Now what: To pay for the acquisition, LTX-Credence plans to use $73.5 million of its cash pile along with debt in the form of a $20 million promissory note to Dover, with the deal expected to close by the end of the year. The combined companies are expected to report trailing-12-month pro forma revenue of roughly $420 million, a big jump from LTX's fiscal 2013 revenue of just under $152 million.

Best of all, the press release notes the acquisition should be immediately accretive to LTX-Credence's earnings, and the combination effectively makes LTX-Credence the "only provider of comprehensive test solutions and services for the semiconductor and printed circuit board markets." From an investment perspective, that makes it awfully difficult to disagree with today's incredible optimism.

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Related Tickers

9/28/2016 4:00 PM
XCRA $6.06 Up +0.12 +2.02%
Xcerra CAPS Rating: *****
DOV $71.47 Up +2.02 +2.91%
Dover CAPS Rating: ***