Kaleyra To Snap Up mGage For $215M; Street Sees 54% Upside

Kaleyra has agreed to buy global mobile messaging provider mGage in a cash-and-stock deal worth $215 million. Shares of the mobile communication services provider rose 1.5% and closed at $16.93 on Feb. 19.

The company said that Kaleyra (KLR) and mGage on a proforma basis will process more than 50 billion transactions globally, with North America generating 31% of revenue, Europe contributing 30% and the balance coming equally from APAC and Latin America. After completion of the acquisition, Kaleyra is expected to generate more than $350 million in revenue for the fiscal year 2021.

The purchase price includes $195 million in cash and 1.6 million shares of Kaleyra common stock. Kaleyra is looking to fund the deal and related costs through an issue of senior unsecured convertible notes due 2026 worth $200 million and the sale of 8.4 million shares of common stock via a private investment in public equity (PIPE) offering. A total of 10 million shares will be issued for the PIPE offering for a total value of $125 million.

The transaction is expected to close in the second quarter of 2021. The sale of common stock and the convertible notes will close before the deal closure. (See Kaleyra stock analysis on TipRanks)

Kaleyra CEO Dario Calogero said, “Kaleyra and mGage together are uniting two world class enterprise cloud communications companies to create a top-5 global CPaaS platform with a diversified and balanced product portfolio and geographical representation.”

“This combination will accelerate and expand Kaleyra’s opportunity to serve the CPaaS market which is expected to reach $26 billion in 2025 with a compound annual growth rate of 35% and consolidate the A2P Enterprise messaging market which is expected to reach $78 billion in 2022,” he added.

On Feb. 16, Kaleyra reported 4Q results. The company incurred a loss of $0.15 per share in the quarter, compared with the $0.09 loss per share estimated by analysts. Total revenues generated in the quarter amounted to $44.3 million, above analysts’ expectations of $42.2 million. For the first quarter of 2021, the company projects revenue to be in the range of $40.5 million to $41.5 million.

On Feb. 17, Northland Securities analyst Michael Latimore reiterated a Buy rating on the stock with a price target of $23 (36% upside potential) after the company “returned to strong y/y growth in 4Q, up 24%, aided by tailwinds in ecommerce, India and voice services, and solid recovery in Italy.”

Kaleyra shares have exploded almost 109% over the past year, while the stock still scores a Strong Buy consensus rating based on 3 unanimous Buys. That’s alongside an average analyst price target of $26, which implies upside potential of about 54% to current levels.

Furthermore, Kaleyra scores a “Perfect 10” from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.

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