Private equity group to purchase NeuStar for $2.9 billion
Sterling-based information services company NeuStar Inc. (NYSE: NSR) has agreed to be purchased by a private investment group for $2.9 billion.
The $33.50-per-share purchase price, announced Wednesday morning, represents a 21 percent premium over Tuesday’s closing price of $27.65.
The private equity group is led by San Francisco-based Golden Gate Capital, which has $15 billion in committed capital. And the price represents a 45 percent premium to NeuStar’s closing stock price Nov. 11, the day before Golden Gate Capital had to disclose an equity stake in the company.
NeuStar’s stock price leapt 20 percent on the news of the acquisition in Wednesday morning trading, reaching $33.35.
The sale will take NeuStar private after 11 years on the public markets. NeuStar has 30 days, until Jan. 13, to essentially shop this proposal around for a better deal before it’s locked in, though after that, either party is on the hook to pay $120 million in termination fees if the deal isn’t consummated. The companies expect to close the sale by the third quarter of next year if the shareholders give the green light.
This announcement is a detour of sorts. NeuStar, which first formed in 1998, had announced earlier this year that it would pursue a split into two publicly traded companies. That move was slated to separate its older number portability business— which helps carriers, providers and businesses switch customer phone numbers between companies — from its growing information management and data marketing businesses.
NeuStar CEO Lisa Hook said in a statement the sale will allow the company to continue to strengthen its market position in marketing, security and communications solutions. The purchase will also give NeuStar “operational flexibility,” though the company didn’t address whether the corporate split would proceed.
What the purchase means for NeuStar’s number management and portability business is unclear. In 2014, NeuStar lost its big $450 million annual contract as the local number portability administrator for North America — a job that accounted for nearly half of the local company’s annual revenue. The North American Portability Management LLC, a consortium of telecom companies that funds the contract, instead picked Telcordia Technologies Inc., a subsidiary of Ericsson Inc. (NASDAQ: ERIC), to replace NeuStar.
But that transition has been plagued by delays, with Hook saying in previous earnings calls that she expects the contract to last into 2018 for NeuStar. Meanwhile, she said, the company’s consultants have pegged the transition to occur closer to 2019.
NeuStar also awaits the outcome of a lawsuit it filed against the Federal Communications Commission in D.C. Circuit Court over that contract loss, arguing at least in part that Telcordia may not be impartial because of Ericsson’s foreign business interests. The judge heard arguments on that case in September, which means a ruling could come down any day now.
NeuStar has seen its revenue grow recently, reporting $300 million in the third quarter of 2016, up from $261 million during the same time last year. The company reported $885 million for the first nine months of 2016, up from $769 million during the same time in 2015.
Its $53 million in third-quarter net income was up slightly from $50 million last year. However, the first nine months of 2016 yielded $122 million in net income, down from $141 million during the first nine months of 2015.
The anemic growth in net income could be one of the reasons to take the company private, allowing it to focus less on quarterly growth and profitability and more on growing long-term revenue, diversifying its business and preparing itself for the loss of a major source of income.
For example, the company is seeing growth specifically from its cybersecurity business, with third-quarter revenue rising nearly 19 percent to $51 million in 2016, up from $43 million last year.