NeuStar Buys DNS Player
Phone-number clearinghouse company Neustar Inc. (NYSE: NSR) announced on Wednesday evening it will acquire UltraDNS Corp., a managed domain name systems (DNS) services provider, for $61.8 million in cash. (See NeuStar Acquires UltraDNS.)
UltraDNS says it plays a key role in directing and managing Internet traffic, as well as ensuring the security of Websites and email. The company says it has more than 7,500 customers and manages more than 12 million Internet domains -- approximately 20 percent of the global domain market.
The acquisition will effectively move NeuStar further into the business of facilitating interoperability between IP-speaking communication networks and services.
NeuStar already performs interconnectivity services for the new wave of VOIP purveyors, including ISPs, Vonage Holdings Corp. (NYSE: VG) and its ilk, and cable operators. These customers’ technology has substantially blurred the line between traditional number interconnectivity services -- NeuStar's original business -- and Internet-based ones. (See Telecom's New Star.)
NeuStar also manages the databases that manage traffic exchange for the .biz and .us Internet domains. But with all those things under management, the company couldn't manage to call us back for comment by deadline Thursday.
Investors seemed moderately pleased, or at least not offended, by NeuStar's M&A plans. After closing Wednesday at $32.85, the company's stock moved to $33.74 in midday trading Thursday.
NeuStar believes revenues from UltraDNS services will grow in excess of 40 percent in the first year, and that the acquisition will begin paying dividends by the first quarter of 2007. According to financial statements, UltraDNS was profitable in 2005, fueled by revenues of $12.6 million. NeuStar believes UltraDNS revenues will grow to more than $17.6 million during 2006.
The acquisition still must pass muster with the regulators, the companies note.
While some analysts were still mulling over the deal’s implications Thursday, ThinkEquity LLC analyst Jonathan Hoopes came out decidedly positive in a brief Thursday. “NeuStar benefits from ‘constant change’ in the telecommunications industry,” writes Hoopes, who predicts it will soon be a $36 dollar stock. “NeuStar should constitute a core holding for investors who are seeking exposure to next-generation communications infrastructure services." (See NeuStar Reports Q4.)
NeuStar has been a particularly well-positioned "middleman" in the telecommunications business. The company provides numbers clearinghouse and interoperability services for telcos and others selling phone service in North America. The Virginia-based company's databases enable the exchange of data necessary for the passage of calls from one provider's network to another.
NeuStar also has a growing business in selling and managing telephone number portability services. (See IMS Guide.)
Most of the company’s core services are performed under contracts with the Federal Communications Commission (FCC) , regulatory filings suggest. NeuStar rode to its $605 million IPO last summer on the strength of its contracts with North American Portability Management, the North American Numbering Plan Administrator (NANPA), and the National Pooling Administrator (NPA) to manage large ENUM databases.
NeuStar’s stock opened at $22 per share after its IPO and trades today in the $32 to $33 range. (See NeuStar Twinkles on Wall Street.)
The UltraDNS acquisition can also be seen as another step toward diversifying. In October of last year, NeuStar launched its SIP-IX peering service, which helps carriers pass SIP application sessions back and forth between their networks. (See NeuStar Unveils SIP-X.)
— Mark Sullivan, Reporter, Light Reading