Rumor Mill: Synchronoss in Play

There are variation of Ericsson (NASDAQ:ERIC) or Amdocs (NYSE:DOX) for Synchronoss (NASDAQ:SNCR) rumor making rounds today and I'd like to share my initial thoughts on the topic. First of all, Synchronoss does make a great acquisition target for a number of reasons:

- Despite lowering the bar at the last earnings conference call, the company is still growing revenue 25% this year.

- Attractive margin profile: 56-58% gross margins and 30% operating margin with operating margin expanding over time.

- Company would greatly benefit from added scale when acquired by bigger player with presence at the telecom operators.

Despite its internal struggles, Ericsson does fit the profile of potential suitor. ERIC acquired LHS AG in June 2007, making entry to the OSS (operations support systems) space. Adding SNCR would give Ericsson another fitting piece to restore growth.

Amdocs is also making push to the OSS market and SNCR would be logical tgt for them, with margins already above those of DOX. Also, the AT&T link is there with both companies having AT&T as a major customer. And think of all the cross-selling possibilities the deal would provide.

Why would either company make an offer? First and foremost, the margin profile of SNCR that would be even more impressive on larger scale.

On an interesting sidenote, IPO bookrunner Goldman Sachs still owns 4.5% stake in the company.

Comments

[User 171402]

Deal only makes sense if SNCR can negotiate a significant premium. SNCR has a global monopoly position with its activation system for iPhones. And once carriers see the cost and other customer benefits of their platform, SNCR is winning incremental business. Take together, SNCR has a huge market oppty over the next 3-5 years. Unless, ERICY or AMDOCS is willing to pay for all that growth potential today, SNCR shareholders should reject their overtures.