Verizon Communications Inc. (NYSE: VZ) agreed to buy GPS vehicle-tracking company Fleetmatics Group plc (NYSE: FLTX) in an all-cash deal valued at $2.4 billion, vaulting the telephone giant deeper into the automotive-technology market.
Verizon will pay $60 a share. Fleetmatics, based in Dublin, develops software that tracks commercial drivers’ vehicle location, fuel usage, speed and mileage for better fleet management. The deal is expected to close in the fourth quarter.
With its wireless business slowing, Verizon has been pursuing new sources of growth like mobile advertising, streaming video and the so-called Internet of Things. The deal is the latest in an acquisitive streak for Verizon, following its $4.83 billion purchase of Yahoo Inc.’s web assets.
The recent deals are unlikely to set Verizon back much in its plan to improve liquidity. The company ended June with net debt of $96.9 billion, or 2.2 times adjusted earnings before interest, tax, depreciation and amortization. Even after the Yahoo deal was announced, chief financial officer Fran Shammo said Verizon was still on track to restore its credit rating profile by 2019 to where it was before the 2014 deal to buy out partner Vodafone Group Plc’s stake in Verizon Wireless. Before the Vodafone transaction, Verizon’s net debt was typically around 1.5 times earnings.
In acquiring Fleetmatics, Verizon will build on a small but growing presence in the commercial fleet management segment, said John Butler, an analyst at Bloomberg Intelligence. The company previously bought Hughes Telematics in 2012 and Telogis Inc. in June to marry its nationwide wireless coverage with commercial-fleet monitoring to offer services such as route and fuel optimization.
Verizon’s Telematics division posted $400 million in sales in the first half, with the business growing about 25 percent year-over-year, making it one of the carrier’s fastest-growing segments, according to a Bloomberg Intelligence analysis. Fleetmatics would have added 40.5 percent to the segment’s revenue in the first half based on second-quarter analyst estimates.
“One of the most developed Internet of Things markets right now -- and fastest evolving -- is the automotive market,” Butler said in an interview. Verizon, which manages a large number of vehicles of its own for FiOS service installation and repair, “understands this business very well,” he said.
“Verizon’s being smart by targeting the vehicle market -- and on the commercial side,” Butler said.
PJT Partners and Wells Fargo Securities LLC are Verizon’s financial advisers on the deal and Cleary Gottlieb Steen & Hamilton LLP, A&L Goodbody and Macfarlanes LLP are providing legal counsel. Morgan Stanley is serving as financial adviser to Fleetmatics, with Goodwin Procter LLP and Maples and Calder giving legal counsel.