What happened

Shares of engineering software company Altair (NASDAQ:ALTR) -- not to be confused with Altera, which used the "ALTR" stock ticker prior to being bought by Intel two years ago -- is doing some acquiring of its own. This morning, Altair announced that it will acquire business software maker Datawatch Corporation (NASDAQ:DWCH) for $176 million.

Altair stock promptly plunged on the news, closing the day down 19%.

Wall painting of large fish chasing smaller fish

Altair eats Datawatch. Shareholders get indigestion. Image source: Getty Images.

So what

Altair will pay $13.10 cash for each share of Datawatch now outstanding -- a 35% premium over the cost of those same shares at the close of trading last week.

Altair CEO James Scapa explained the transaction, saying:

Bringing Datawatch into Altair should result in a powerful offering consistent with our vision to transform product design and decision making by applying simulation, data science and optimization throughout product lifecycles.

It will also, says Altair, create the opportunity "to cross-sell Datawatch products into Altair's primarily manufacturing customer base."

Altair did not state in its press release what financial effects it expects to see from the merger. That being said, the effects probably won't be immediately good, given that Datawatch is currently unprofitable. (Altair is unprofitable, too, but unlike Datawatch, Altair is at least free cash flow-positive).

Most likely: The merged company will be able to eliminate redundant positions and become slightly less unprofitable together than the two companies were apart.

Now what

Altair expects to close its acquisition of Datawatch in the current Q4 2018. Given that it has $199 million cash in the bank, and is paying only $176 million for Datawatch, financing the transaction should be no problem at all.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.