Amdocs Gets Top Billing

In most cases, the buyer in an M&A transaction gets a harsh judgment from Wall Street -- that is, a swift reduction in the stock price. Wall Street tends to assume that buyers overpay, overestimate the time it takes for integration, and project too much optimism about the benefits of the sale.

Well, this was certainly not the case yesterday, when Amdocs (NYSE: DOX  ) announced its $238 million purchase of the DST Innovis unit of DST Systems (NYSE: DST  ) . The stock price of Amdocs subsequently increased $1.06 to $27.79.

Amdocs develops sophisticated software solutions to help companies automate customer service -- managing things like orders, billing, customer support, and delivery fulfillment. In the past year, the company has generated roughly $1.7 billion in revenues and profits of $234.9 million.

Amdocs' customer base has been concentrated primarily in the telecom industry. But as a result of the DST Innovis acquisition, Amdocs will now be a player in customer care solutions for both the cable and satellite markets. Some of Innovis' customers include Comcast (Nasdaq: CMCSA  ) , DirectTV, and Cablevision.

No doubt, Innovis has scale -- the company manages roughly 37 million subscribers.

Cable and satellite companies have been converging into "triple play" service providers, offering voice, data, and video services. This translates into much more complexity in terms of customer care and billing. These companies are, in fact, getting much more involved in telecom services, which suits Amdocs well.

This is certainly a market-share play for Amdocs. But it stands to reason that there are also some synergies, because Amdocs' telecom expertise will help DST maintain its customers as it delves more and more into voice services. Investors have recently been concerned about how Amdocs will be able to grow, but now the company has an answer that Wall Street seems to understand.

And Amdocs didn't even have to pay a premium price for the growth, since the deal is expected to be neutral to earnings per share (EPS) in the fourth quarter of fiscal year 2005. More importantly, it will be accretive in fiscal year 2006 and thereafter.

Fool contributor Tom Taulli does not own shares of any of the companies mentioned in this article.