could be the next obscure telecom name to be swept up in the private-equity buyout boom.
Monday's $24.7 billion takeout of
by TPG and
has investors scouring the telecommunications sector for possible targets. Some are looking closely at telecom and cable-billing and support-systems stocks, which bulls say boast strong cash flows and solid growth potential.
While Alltel is a big company by market capitalization, it's hardly a household name. In that regard it's similar to some of the other names being mulled over by telecom back-office bulls. They see
and Convergys on the private-equity radar.
These companies are similar in their low profile but solid buyout fundamentals to some other recent takeover plays, including
( FD) and
Alliance Data Systems
. Kohlberg Kravis agreed last month to buy First Data for $29 billion, and Blackstone earlier this month agreed to fork over $7.8 billion for Alliance Data.
Amdocs, which provides billing and other services for telecom companies,
jumped 6.5% Monday on buyback chatter tied to a possible takeover by possible strategic investors including
International Business Machines
jumping were wireless plays
, though some observers caution the Alltel deal was an unusually appealing situation for private equity buyers, given that the company has been for sale for years and carries a light debt load.
Amdocs would be a logical candidate for a private-equity deal because it has steady recurring revenues and has substantial upside growth, says Scott Sutherland, an analyst at Wedbush Morgan Securities who covers the company and similar firms.
Sutherland believes that Amdocs, which had revenue of $2.48 billion last year, could be operated more efficiently in the private spectrum. The Chesterfield, Mo.-based company serves customers including
An external spokeswoman for Amdocs declined to comment on a possible takeout.
Beyond Amdocs, there are other names that fit the private-equity billing services diet.
Observers say Englewood, Colo.-based CSG, which provides billing services for cable and direct broadcast satellite markets in North America, also may be a logical buyout play. Sutherland notes that 40% of its revenue comes from four customers:
CSG saw total revenue for the first quarter of 2007 grow 6% from a year ago and 2% from fourth-quarter levels to $98.7 million.
A CSG rep didn't comment.
Another potential target may be Cincinnati-based Convergys, which provides billing and human resources outsourcing. The company saw revenue of $2.8 billion last year and has potential to boost its business and expand further, Sutherland says.
The company, which has 74,000 employees in 76 customer contact centers, three data centers and other facilities in the U.S., Canada, Latin America, Europe, the Middle East and Asia, saw first-quarter profit rise 19%, thanks to solid growth in its markets.
A spokesman for Convergys declined to comment on buyout talk.
Convergys earned $43.6 million, or 31 cents a share, up from $36.7 million, or 26 cents a share a year ago. Revenue rose 7% to $719.9 million.
private equity might be attracted to most is recurring cash flows," Sutherland notes.