Verra Mobility has sealed a deal to buy 100% of the issued share capital of rival Redflex Holdings Ltd. for a total of A$146.1 million ($113 million). Shares of Nasdaq-listed Verra Mobility rose 3.9%, while Redflex listed on the Australian Securities Exchange spiked 115% on Jan. 22.
As part of the acquisition proposal, Arizona-based Verra Mobility (VRRM) has offered to pay Redflex shareholders A$0.92 per share, reflecting a 130% premium to its closing price on Jan. 21.
The smart mobility software company said that the combination with Australia-based Redflex, which develops traffic management products, including red light and speed cameras, will strengthen and expand its global market reach of road safety products and services. The company’s products are sold in the Asia Pacific, North America, the UK, Europe and the Middle East.
“We are incredibly excited for this step forward in building the Verra Mobility of the future, expanding our portfolio of safe city solutions, and solidifying our position as a global leader in smart transportation,” said Verra Mobility CEO David Roberts.
The transaction is expected to close in May 2021, subject to the approval by Redflex shareholders and regulatory permission.
William Blair analyst Louie DiPalma reiterated a Buy rating on the stock as he believes that the deal should help boost the shares by “at least” 15%. This is based on expected cost synergies and the 8-times deal multiple versus Verra’s current multiple of 13.6 times, according to DiPalma.
Furthermore, the deal can be seen as an opportunity to open the business up to international markets, while it also removes one of Verra Mobility’s biggest competitors. (See VRRM stock analysis on TipRanks
The rest of the Street shares DiPalma’s bullish stock outlook. The other two analysts recently covering the stock also have a Buy rating, which together add up to a Strong Buy analyst consensus. Looking ahead, the average price target stands at $14 and implies 3.6% upside potential over the coming 12 months.
Meanwhile, on TipRanks’ Smart Score system, VRRM is rated a 5 out of 10, which indicates that the stock is likely to perform in line with market expectations.
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