Orbcomm (NASDAQ:ORBC) isn't exactly a household name, but in the Internet of Things (IoT) market, it's a force to be reckoned with. So much so, in fact, that Orbcomm is now set to go private following a massive acquisition deal that will see Orbcomm become wholly owned by GI Partners in a deal that represents a 10-figure price tag.
A Blockbuster Deal
Under the terms of the deal, GI Partners—a private equity firm—will acquire Orbcomm for $1.1 billion in an all-cash deal, including the company's net debt. That in turn led to a massive run-up in share price as the deal would essentially call for GI Partners to pay shareholders $11.50 per share. Given that the company closed on Wednesday at $7.57, it was clear that a jump to $11.50 was pretty much inevitable. In fact, the rush to get in on the offer managed to carry on through much of Thursday, with the stock closing yesterday at $11.51 per share.
The interesting part, however, is that this may ultimately be all for naught. While the board of directors at Orbcomm has already approved the deal—and unanimously at that, which isn't surprising given the guaranteed payout of $11.50 per share—there are still some hurdles in the way. One of the biggest is that current Orbcomm shareholders—of which there are a whole lot more now than there were—will have to ultimately sign off on the deal as well. The board, naturally, recommends that the sale go through, but even with approval, there will be a “go-shop” period lasting 30 days, in which the company can look for better offers from other firms.
Should all go through as the board seems to hope, the deal will be concluded sometime in 2021's second half.
A Bullish Analyst Picture
Orbcomm has enjoyed significant amounts of analyst support in the past, and our latest research points out that that support hasn't faded much. Though it's slipped a bit in recent weeks, it's still carrying a consensus “buy” rating, with some changes in the ratios in the meantime.
A year ago, Orbcomm had two “hold” ratings on it. Six months ago, that slipped to just one “hold” rating. However, three months ago, things really took off for Orbcomm as the company tacked on one “strong buy” rating to go with its one “hold” rating. Which brings us to today, where the one “strong buy” has been suddenly vindicated by the GI Partners offer, but the three “hold” ratings the company also carries aren't looking all that out of line either.
The price target, meanwhile, currently sits at $10.60, as both Roth Capital and Canaccord Genuity adjusted their price targets to $11.50, and both dropped their ratings from “buy” to “hold.”
But What If The Deal Misses?
So right now, it might seem like a foregone conclusion to not buy in on Orbcomm any further, because it's probably going to wind up as part of GI Partners by Christmas and the share price now has a ceiling that precludes further growth. And no, you can't buy in on GI Partners as it doesn't seem to be publicly traded. That being said, it may not be a bad idea to pick up a few shares anyway thanks to a couple potential points of failure in the moving parts of this deal.
Remember, there are two key points of this deal that have yet to be realized. One, the shareholders have to approve it. While the board is recommending that the deal go through, it would not be the first time that shareholders have voted contrary to a board's recommendations. Two, the company is now embarking on its 30-day “go-shop” period; it's entirely possible from here that the board may ultimately take GI Partners' offer to other companies and make it clear that there's interest in picking up Orbcomm. Much in the same way that an employee might go out and get a job offer, then take that offer to their current employers to justify a raise in pay, Orbcomm could do something similar. Though admittedly, there doesn't seem to be much will in that point given that Orbcomm's board is already recommending taking the current offer on the table.
Essentially, it comes down to a case of whether or not a potential investor wants to run the risk that $11.50 may indeed be the absolute price ceiling here. The upshot to all this is that the ceiling is also likely to be the floor in the short term; if everything goes as planned, then there's a guaranteed $11.50 payoff per share at the end of it all. If not, then the possibilities for higher—and lower—kick in, and with acquisition interest from one company already in hand, getting another interested might not be all that difficult.
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