Recently, the term, “Big Data”, has come into popular use within the IT market. And this type of data is the driving force behind Imation Corp. (Stock: IMN). “Big Data becomes evident when the amount of data and files exceed the ability of traditional methods to manage, analyze and understand the meaning behind the data”. This has led to a huge demand in the type of scalable data storage and enterprise security products that a company like IMN handles.
Imation is looking to maximize this opportunity by growing through acquisition. It recently acquired privately held Nexsan Corp for $120M in cash and stock to accelerate its data storage growth. This predictably saw the stock take a dive with shares falling by $0.43 on January 2. There was also a considerably large volume increase with around 647,600 shares changing hands. This represents a 674.5 percent gain over its 65-day average.
What happens post a big acquisition?
The good news for IMN investors is that this Nexsan acquisition will add to Imation's earnings right away. There should also be a bullish sentiment leading up to the earnings report in a month's time a day shy of Valentine's Day. For now, bears will look to make money off Imation with put options as is the case with any acquiring company. There are a number of reasons this happens with the main one being the additional debt and expenses that must be incurred to buy a target company.
This was quite significant in Imation's case as its market cap is 147.08M.
Imation was in need of a big move
Things aren't rosy when a stock has a negative EPS of -1.16 and a P/E that is not reported. It gets even worse when the net profit margin was -2.54% in 3Q12. Not to mention the negative revenue growth rate that prevailed throughout 2012 and the last four years or so culminating in a -19.57% growth rate in 3Q12. Something had to be done and the move to acquire Nexsan is an effort to transform strategically.
Imation has significant assets including its global name as a storage brand and Nexsan will benefit greatly from this. Nexsan had $82M in revenues in 2011 and it has had considerable sales growth with gross margins at around 40%. The move will make Imation's tiered storage growth platform stronger along with its security solutions.