Luxoft Holding Inc. (NYSE:LXFT) seems to be changing its business model for this year. Notably, the firm announced just recently that it was entering a definitive acquisition agreement with DXC Technology. In the agreement, DXC will acquire Luxoft is a cash deal that could approach $2 billion.
DXC pays a high premium for Luxoft
According to details of the deal, each investor will receive cash in exchange for their shares. Interestingly, each share will earn $59, which represents a premium of over 85% compared to the closing price first Friday of 2019. Further, the transaction brings up the value of LXFT’s equity to $2 billion.
DXC specializes in modernization and integration of IT across all industries. On the other hand, Luxoft offers differentiated products in the digital sector with proprietary innovations. Notably, the firm boasts wide-ranging expertise in the industry and also employs the best talent. In their agreement, the firms will combine their expertise to offer “a differentiated customer value proposition for end-to-end digital transformation.”
Interestingly, it is not surprising that DXC is ready to pay such a high premium for the company. Notably, Luxoft has reported positive figures for the last four quarters consecutively. In particular, the firm raked in revenue of approximately $911 million in the previous twelve months. Add on this a bullish and robust CAGR that runs for the last three years now.
A strong quarter over quarter performance
According to Mike Lawrie, CEO of DXC Technology, Luxoft comes around as highly complementary. Further, the firm has a robust business strategy which bears enormous benefits to DXC clients. As such, DXC expects Luxoft to accelerate its growth strategy across key industries.
Despite the great run so far, Luxoft faltered in Q2 FY2019. In the quarter, most of the figures reported were less than the comparable quarter 2017. Notably, the firm reported net income as $14.4 million compared to $18.4 million in the previous year. Interestingly, the firm attributed the decline to various challenges in the emanating from the investment banking sector.
Nonetheless, gross revenue hit $228.4 million. In particular, this represents an increase of 0.2% year-over-year. Further, the figure implies a 7.3% sequential increase for the last up to four quarters. Interestingly, the quarter saw Luxoft report increased per capita revenue. Notably, each engineer was able to rake in $83,043 annually, and it translates to an increase of 0.4% compared to the previous year.
Better days ahead
Interestingly, the equity market was not late in responding to the poor results. Notably, the stock slid over 17.5% in the immediate aftermath of the reporting of the results. Interestingly, the stock went into more than a month-long bear market that saw the share price slide past $30.
Before the acquisition reports from DXC, the stock was still spiraling lower. By the close of business on Friday 4, 2019, the RSI reading was in the weak zone. This is to say that the share price was likely to continue in the territory of the bears.
However, the current RSI reading is 86.92 which is evidence that the DXC acquisition is what all the stock needed. Notably, the heightened investor interest in the stock is on the back of the recent spike in price.
Notably, the RSI reading implies that the stock is now strong enough to get out of the bear market. Further, the volume traded in the equity market spiked to the level that is positive. All these indicators, alongside the enamored business strategy, will boost the share price.
According to the agreement with DXC, the firms will together offer “End-to-end digital capabilities for the financial services industry, with a truly global footprint and new services in insurance, where DXC is a recognized industry leader.” As such, investors should expect the firm to continue on a strong growth curve.