BlackBerry Ltd (NASDAQ:BBRY) to Buy Good Technology for $425 Million; Will it Turn Things Around?

BlackBerry
Image by Kārlis Dambrāns

While losing ground in its smartphone business, BlackBerry Limited (NASDAQ:BBRY) might win the battle in the enterprise game. On Friday September 4th, BlackBerry announced that it would acquire former rival Good Technology for $425 million in cash. (Source: BlackBerry, last accessed September 4, 2015.)

California-based Good Technology has been a long-term rival for BlackBerry in the secure mobile communications business. The company offers secure e-mail, applications, and communications services to corporations and governments.

Buying Good Technology would expand BlackBerry’s offerings due to its multi-platform nature. Good Technology has experience managing devices that run on Google’s Android, Microsoft’s Windows, and Apple’s iOS.

The deal would very likely bring new clients to BlackBerry in its device management software business. Currently, more than half of Good Technology’s product activations are on devices running Apple’s iOS.

The news had a positive effect on BlackBerry’s stock price. By around 1:00 p.m. E.T. on Friday, September 4th, shares of BlackBerry are trading 1.21% higher at $7.55 apiece.

“By acquiring Good, BlackBerry will better solve one of the biggest struggles for CIOs today, especially those in regulated industries: securely managing devices across any platform,” said John Chen, BlackBerry’s Executive Chairman and CEO. “By providing even stronger cross-platform capabilities our customers will not have to compromise on their choice of operating systems, deployment models or any level of privacy and security.”

$425 Million Cash Deal

Some analysts are worried about this $425 million cash deal because the company’s cash position hasn’t been that great recently. To respond to the cash burn problem, John Chen said, “There obviously will be hard work involved. But I do see a lot of opportunity here to drive value for our shareholders.” He also promised that the company would remain cash flow positive overall. (Source: Yahoo Finance, last accessed September 4, 2015.)

BlackBerry expects the acquisition to be accretive to earnings and cash flow within the first year of closing. The company also expects to realize around $160 million in GAAP revenue from Good Technology in the first year.

The deal is subject to customary closing conditions including regulatory approvals. If everything goes as planned, the transaction would be completed by the end of the third quarter of BlackBerry’s fiscal 2016.

BlackBerry’s Transition: From Selling Smartphones to Device Management

In case you haven’t noticed, BlackBerry’s smartphone business hasn’t been doing that well lately. According to the International Data Corporation (IDC), smartphones running BlackBerry’s operating systems only captured a dismal 0.3% of market share in the second quarter of 2015. (Source: International Data Corporation, last accessed September 4, 2015.)

One problem with BlackBerry’s smartphone business is that due to its limited market share, the company’s proprietary operating system has been having a hard time getting big name apps.

To save its dwindling smartphone business, it was reported that BlackBerry would equip its upcoming smartphone Venice with Google’s Android operating system. (Source: Engadget, last accessed September 4, 2015.)

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The company is also shifting its focus to software and device management. Last year, BlackBerry unveiled BES 12, its new device management system. The system would allow corporate and government clients to manage devices on their internal networks.

So far, the transition seems to be going well. In the first quarter of the company’s fiscal 2016, BlackBerry’s software and technology licensing revenue surged 150% year-over-year to $137 million. During this period, the company also completed the acquisition of WatchDox, which provided secure enterprise file-sync-and-share (EFSS) solutions that allow users to protect, share, and work with their files on Android, iOS, Windows Phone, BlackBerry, and PCs. (Source: BlackBerry, last accessed September 4, 2015.)

Despite the growth in its enterprise business, BlackBerry is still losing money. In the most recent quarter, the company had a loss of five cents per share. In response, BlackBerry’s stock price slipped more than three percent on the earnings report. However, investors should know that the company is in a transition phase with acquisitions and new products on their way. If those plans turned out to be performing, it might regain some lost ground. And when that happens, so will its stock price.