Shares of information services provider NeuStar Inc. (NYSE: NSR) jumped on Wednesday after the company agreed to be acquired by a private investment group. The stock was up almost 20% at 11:15 a.m. to about $33.08 a share, just shy of the offer price.
Golden Gate Capital is leading the investment group paying $33.50 per share in cash for NeuStar. That price represents a 45% premium to the stock's closing price on Nov. 11, the day before Golden Gate disclosed that it had an equity position in the company. The transaction is valued at $2.9 billion including debt.
According to NeuStar, its strength lies in its hard-to-replicate datasets:
"Since the beginning of 2011, NeuStar has been executing against a multi-year strategic plan to leverage the Company's leading position in Order & Inventory Management and real-time Numbering Services, including foundational capabilities in managing complex datasets and authoritative real-time connectivity, to become a market-leading provider of Information Services. NeuStar has built a robust market position around unique, hard-to-replicate datasets and the data science that provides authoritative identities, updated in real time."
The transaction is expected to close by the end of the third calendar quarter of 2017. NeuStar will have 30 days to solicit alternative proposals.
NeuStar CEO Lisa Hook believes the transaction is the best way for the company to execute its long-term strategy:
"We believe this transaction will enable us to continue to execute against our strategy and strengthen our market position as a leader in marketing, risk, security and communication solutions. Golden Gate Capital and GIC offered us a compelling opportunity to continue to invest and pursue long-term growth with operational flexibility, and we look forward to working with these two sophisticated investors. Importantly, customers, employees and partners will continue to benefit as we execute against our strategy."
The offer price, which values NeuStar's equity at about $1.85 billion, is just 11 times the company's net income in 2015. Operating income has been roughly flat since 2012, however, and profitability has taken a hit in so far this year. In the third quarter, NeuStar produced operating income of $67 million, down from $81 million in the prior-year period. While revenue is still growing, slumping profits may be the driver behind the depressed offer price.