LifeLock's Stock Rallied 8% Amid Takeover Report; Canaccord Still A Buyer Of Shares

The Appeal Of Going Private

Bloomberg reported that LifeLock is in talks with several parties about being taken private. The report added that the final bids for the company are due this month and could value LifeLock at about $2 billion. Buyout firm TPG is among potential suitors, Bloomberg noted.

Analyst David Hynes said a private equity acquisition of LifeLock “makes sense” as the company possesses all the features a private equity buyer is looking for stable cash flows, limited ongoing capital investment, modest future growth and short-term ability to enhance performance.

In fact, Hynes said he had “long thought” that LifeLock would be on the radar of an acquirer like Experian plc (ADR) EXPGY, which also happens to now own LifeLock data partner CSID.

“[W]e think there could be multiple suitors in a prospective transaction,” Hynes wrote in a note.

Projections

The analyst noted that the rumored $2 billion price values Lifelock at roughly $22–$23 per share given 97 million fully diluted outstanding shares and nearly $2/share in cash on the balance sheet.

“Our best guess is that the clearing price for a LOCK takeout is in the $25–30 range,” Hynes highlighted.

Hynes projections assume LifeLock generates $735 million revenue next year and PE buyer would presumably cut costs, resulting in a “cleaned up” EBITDA margin that could top 35 percent in relatively short order. Notably, the company spends mid-40 percent of its revenue on sales & marketing.

“If that’s right, we think a PE buyer could make a baseline bid of 10x those grossed up profits, which using 100 million shares and $2/share in cash for simplicity, gets us to a takeout price of nearly $28 per share,” Hynes continued.

On the fundamental front, the analyst believes LifeLock is on the verge of realizing an upward turn in its underlying business drivers as the FTC settlement headwinds are on the back burner, and the employee benefits channel should drive healthy fourth-quarter member growth.

“This stock is not for the faint of heart, but for those involved or sniffing around here, we think both an improving fundamental backdrop as well as a potential takeout could drive LOCK shares higher,” Hynes added.

Another Voice From The Street

In August, Goldman Sachs initiated coverage of the company with a Neutral rating and price target of $18 and said it sees M&A as a primary upside catalyst.

Shares of LifeLock closed Friday’s trading session at $19.12. Hynes has a Buy rating on the stock, with the price target being raised to $23 from $21. At last check, LifeLock was up 2.2 percent at $19.54.