The Street Reacts To BlackBerry’s Cylance Acquisition

Canada-based BlackBerry Ltd (NYSE: BB) reached an agreement last week to acquire Cylance, a threat detection cybersecurity company with a specialty in artificial intelligence. Here’s how the sell-side reacted to BlackBerry’s largest M&A move to date.  

The Analysts

CIBC Institutional Equity Research’s Todd Coupland upgraded BlackBerry from Neutral to Outperformer with an unchanged $14 price target.

Canaccord Genuity’s T. Michael Walkley maintains at Hold, unchanged $11 price target.

TD Securities’ Daniel Chan maintains at Buy, unchanged $14 price target.

MKM Partners’ Michael Genovese maintains at Neutral, fair value estimate lowered from $12 to $10.50.

CIBC: BlackBerry’s Strategy Will ‘Play Out’

BlackBerry operates three growth segments, Coupland said in the upgrade note: vehicle security through QNX, securing devices for the Enterprise of Things and securing the end points with Spark.

The Cylance acquisition will add new technologies to the EoT and Spark platforms and help BlackBerry’s strategy “play out in the coming years,” the analyst said. The growth outlook for the three segments “improved” after the Cylance announcement, he said. 

Canaccord: More Details Needed

BlackBerry likely paid less than seven times forward revenue to acquire Cylance, which implies a “premium deal multiple,” Walkley said. Any synergies are unlikely to be realized until the post-merger platform integration is complete, he said.

A change in stance may be warranted in the future and remains conditional on management offering more commentary on the pro forma financial impact from the acquisition, in Canaccord’s view. 

The deal will be “well received” by the market, as it will likely speed up the company’s strategy of becoming a leader in securing the EoT market, the analyst said. 

Related Link: Earnings Quality, Growth Concerns Sideline Sell-Side On BlackBerry

TD: Complementary Transaction

BlackBerry’s core strengths are evident in financial services, government and other regulated industries, Chan said in a note. The Cylance acquisition should open new markets for BlackBerry, including health care in North America, he said.

Cylance’s business has 15-percent exposure to international markets, and BlackBerry can leverage its higher exposure to international sales to generate additional growth from Cylance in new markets, the analyst said. 

MKM: Good Move, But New Valuation Needed

BlackBerry’s “smart move” will leave it in a better position to compete against a handful of large public companies and other private companies, Genovese said in a note. The company now oversees more than $1 billion in enterprise security and mobility sales, and the acquisition gives it a “much improved offering” across end point management and the EoT segment, he said. 

MKM’s prior $12 fair value estimate was based on a 5x multiple on estimated 2020 EV-to-sales, but a downward revision to a 4.5x multiple is warranted, as valuations across the space have come down, the analyst said. 

Price Action

BlackBerry shares were down 2.56 percent at $8.74 at the time of publication Monday. 

Related Link: Does Stifled Growth, Pricey Valuation Offset Blackberry’s IoT Upside?

Photo courtesy of BlackBerry.