Against a muted midweek opening session, global communications platform Kaleyra (NYSE:KLR) brightened the atmosphere, gaining about 40%. Early Wednesday morning, Tata Communications — an international digital ecosystem enabler and subsidiary of the Tata Group — announced that it will acquire Kaleyra. As a result, KLR stock skyrocketed, providing a reprieve for longtime shareholders that saw valuations crumble since its 2021 peak.
According to the accompanying press release, Tata “…will gain an industry-proven platform with strong capabilities and scale.” Fundamentally, Kaleyra commands a stronghold in the business communications market in banking and financial services, as well as retail and digital commerce industries across international markets. Tata also praised Kaleyra’s technology, engineering, research and development expertise.
Significantly, Tata will also carry the advantage of tier 1 carrier connections in the U.S. Per Techopedia, a tier 1 carrier is an internet service provider (ISP) that “…can serve its coverage area entirely through settlement-free collaboration with other carriers, rather than having to pay tolls to other companies for using parts of a third party’s IP network.”
Under the terms of the agreement, Tata will acquire Kaleyra in a cash-only transaction at $7.25 per share of KLR stock. The total consideration to KLR shareholders will be approximately $100 million and the assumption of all outstanding debt.
Investors of KLR Stock Get a Reprieve
As part of a broader strategy, Tata’s ambitious acquisition of KLR stock appears to make plenty of sense. According to Grand View Research, the global unified communications market carried a valuation of $113.48 billion in 2022. Experts project that the segment will expand at a compound annual growth rate (CAGR) of 17.4% from 2023 to 2030.
At the culmination of the forecast period above, the sector should command revenue of $417.86 billion. For reference, the market capitalization of KLR stock at the time of writing sat at $88.43 million. Therefore, with its latest buyout, Tata may have a “blue sky” opportunity.
However, those who had speculated on KLR stock earlier this year represented the biggest winners. While Kaleyra appeared to start 2023 on an auspicious note, its shares eventually crumbled. Overall, KLR has been a disappointment. At its peak, the security traded hands for above $60. Following the buyout news, KLR landed at $6.69. Still, beleaguered stakeholders at least received some reprieve for their troubles.
Frankly, the Tata buyout may have been the best-case scenario for the communications platform. According to investment resource Gurufocus, Kaleyra’s three-year EBITDA growth rate on a per-share basis slipped to 27.2% below zero. Also, both its trailing-year operating and net margins sank into negative territory.
To add insult to injury, Gurufocus warned its readers that KLR represented a possible value trap.
Why It Matters
Another confirmation for KLR stock receiving the best possible news comes from the expert community. According to TipRanks, the only analyst recently covering KLR has it as a “hold.” However, the most recent two price targets sat at $2, implying 70% downside risk.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
