Verizon Communications Inc. has agreed to buy Atlanta-based in-car technology company Hughes Telematics for $612 million, the companies announced on Friday, June 1. Verizon will pay more than double the company's closing stock price on Thursday, a big premium for a company that has been losing money.
Hughes is mainly known for developing wireless connectivity systems for vehicles, and its customers include heavy names in the industry, such as Mercedes and Volkswagen. Hughes' technology however is not limited to wireless connectivity systems, it has far broader applications including health care, said Verizon.
M2M and Telematics to Drive Growth
Through this acquisition, Verizon will be able to expand its offerings in machine-to-machine (M2M) applications, as well as connected apps aimed to fill the gap between cars and phones. Verizon will pay $12.00 per share in cash, more than double the company's closing price of $4.35 per share on Thursday.
"We expect M2M and telematics to drive significant growth for Verizon and we're taking an important step forward to accelerate solutions that will unlock more opportunities for existing and new HTI and Verizon customers," said Verizon Enterprise Solutions president John Stratton, as cited by Venturebeat. "In powerful combination with Verizon's global IP network, cloud, mobility and security solutions, Hughes Telematics' flexible service-delivery platform has the potential to reach beyond the automotive and transportation realm to create new opportunities in mHealth, asset tracking and home automation."
Hughes was conceived by brothers Chuck and Kevin Link and their friend Fred Blumer, and launched as a private company in 2006. The partners grew the business and the company eventually went public after merging with Polaris Acquisition Co. back in 2009. According to the most recent corporate filings, Hughes' largest shareholder is private equity firm Apollo Global Management.
Hughes to Operate as Subsidiary
The acquisition deal was unanimously approved by Hughes' board, and is expected to close by the third quarter of 2012. Verizon said it intends to operate the company as a subsidiary and keep its current management team, as well as its headquarters in Atlanta.
According to Verizon, the deal will enable it to expand its automotive and fleet telematics business. Verizon justified the large premium over Hughes' stock price by pointing out that Hughes is a high-growth company, and that "significant due diligence" resulted in a "fair price." The two companies offered no further comment on the sale process.
