Shares of Smith Micro Software Inc. rose Tuesday afternoon after the technology company said it would buy PCTEL Inc.'s cell phone and wireless Internet software unit for $59.7 million in cash.
Shares gained 96 cents, or 12.5 percent, to close at $8.67 Tuesday.
JPMorgan analyst Lauren Ye said the deal will push the company into a leadership position within the connectivity sector. Ye kept an "Overweight" or "Buy" rating on the shares.
"We view this as a positive transaction helping to diversify Smith Micro Software's customer base and fueling 40 percent top line growth in 2008," Ye said in a client note.
The buyout eliminates one of Smith's biggest competitors and brings it six major customers, including Cingular Wireless and T-Mobile USA. "This acquisition also helps to get a foot in the door, which is often difficult and creates opportunity to cross sell other products," Ye said.
Also, the deal helps Smith Micro expand its sales base as, currently, Verizon makes up more than 70 percent of revenue. The deal should bring that below 60 percent, the analyst said.
"The company's strategy is to diversify and expand through more products and grow internationally," Ye added.
The deal is expected to close in January and to add a penny to 2008 earnings, Ye said, noting that she does not foresee any regulatory obstacles to the deal.
Terms & Conditions
RSS Headlines
Fool UK