TOP IDEAS: DDS Wireless International (TSX: DD) competitor is in a buying mood.
We are not in the business of creating rumours, though the suggestion that Constellation Software Inc. (TSX: CSU) would covet DDS Wireless International Inc. (TSX: DD) is not far-reaching.
Constellation Software is in the business news these days. Scores of Canadian technology stock analysts and fund managers quote this Company as their top stock pick, and rightly so. Trading over $100 per share, Constellation Software has been a stellar performer both in share price appreciation and financials results over the past six years running.
With annual revenues of over $773 million, Toronto-based Constellation Software's success was founded on the Company's Management's ability to assemble a portfolio of vertical market software companies. In the past 12 months, Constellation Software has acquired numerous small public and private companies who have market-leading software businesses that address the specific needs of particular industries and, most particularly, in the transportation asset management industry.
Trapeze Group, a passenger transport software solutions and professional services provider is one of Constellation Software's largest operating units. Trapeze Group has been aggressively acquiring companies in its space, utilizing Constellation Software's $300 million acquisition credit facility to help finance its friendly takeovers.
So how does Trapeze Group's acquisition strategy potentially impact DDS Wireless shareholders?
Constellation Software's Trapeze Group competes with DDS Wireless main subsidiaries. They both market software applications for routing and scheduling, real-time dispatching, and vehicle location for Transit, Taxi and Limousines markets on an international basis. In many of these segments DDS Wireless is considered the technology leader. If Trapeze Group acquires DDS Wireless it quickly becomes the dominant player in these transportation markets.
The acquisition of DDS Wireless by Trapeze Group would not be inconsequential to Constellation Software's financial results: the addition of $45 million in revenues (mostly recurring) and substantial EBITDA (earnings before interest, taxes, depreciation, and amortization). Also there are the operational synergies and cost savings when combining public companies.
Are DDS Wireless shareholders willing to sell their Company? At the right price, yes, and it may be the exit strategy for DDS Wireless' CEO & founder who owns more than half of the Company's stock.
To that end, what is the right price per share? Not sure, but certainly more than the $2.00 that DDS Wireless shares trade for today.
Does Constellation Software make a bid to buy DDS Wireless? Just maybe.
DDS Wireless has only 13.8 million shares outstanding.
DDS Wireless share price trades up 20% since Investorfile's first blog post - DDS Wireless: Buy for value, ride the growth.
Author's Ownership Position TSX: DD - Long
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