More BlackBerry M&A Is Coming, Morgan Stanley Says

In a report published Wednesday, Morgan Stanley maintained an Underweight rating on

, with a price target of $7. BlackBerry recently announced the acquisition of WatchDox Tues AM, a company focused on mobile content security. "We would expect smaller acquisitions like this to continue as the company continues to work to achieve their $600mm software/messaging targets through a combination of organic & inorganic activity," the analysts said. BlackBerry generated software revenues of around $250mm in FY15. During the 4Q earnings call, the company indicated, for the first time, that their FY16 messaging / software revenue target of $600mm would be achieved through organic and inorganic means. As its first inorganic step to meet the target, BlackBerry purchased WatchDox Tuesday, which is estimated to have generated revenues of around $20mm in 2014, and is rapidly growing this. "We would expect acquisition activity to continue, as the company has stated it is comfortable taking its cash balance down to $2.5bn from $3.2bn ($1.5bn net)," the analysts wrote. In the report Morgan Stanley noted, "The WatchDox acquisition terms were not released, but are reportedly well south of the $150mm initially whispered and probably in the $70mm range. Given the est rev of the company, this implies a 3-4x rev acquisition price, well south of current security software valuations (5-10x)." Together with the acquisitions of Movirtu and Secusmart in 2014, the company has "exercised discipline in their pursuit of assets," the analysts commented, while adding, "…they likely need to acquire another $120mm of revenue, something that could grow increasingly expensive if acquisitions of size are made."