Nice Systems CEO Seen on the Prowl as Deal Speculation Mounts

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Nice System CEO Barak Eilam
Barak Eilam, chief executive officer of Nice Systems Ltd. Source: Nice Systems Ltd. via Bloomberg

Since Nice Systems Ltd. sold its phone-tapping business, speculation has been mounting that Chief Executive Officer Barak Eilam is on the prowl for acquisitions.

Shares of LivePerson Inc., whose software allows companies to communicate with customers through voice and text chats, soared 14 percent on May 26 after the Israeli press reported Nice had considered buying the company. The news came less than a week after Nice, which makes digital surveillance and monitoring systems, sold its intelligence unit to Israeli defense company Elbit Systems Ltd. for as much as $158 million.

The divestment adds to a cash hoard of almost $600 million for Eilam, who’s looking to boost profitability by focusing on data and analytics services in the company’s core businesses from call centers and public security to financial fraud prevention. Nice’s revenue rose to a record $1 billion last year, while shares have soared almost 40 percent to $62.32 since Eilam took over in April 2014.

“The next step will be them becoming more aggressive in M&A in trying to build out these growth areas,” Daniel Ives, an analyst with FBR Capital Markets & Co., said by phone from New York. Eilam can use the cash “for strategic M&A in next generation analytics, big data.”

Calcalist reported Tuesday that Nice was in talks to acquire LivePerson for as much as $650 million, without saying where it obtained the information. Another Israeli newspaper, the Marker, reported that there were no talks between the companies at this time, citing a source close to LivePerson. Press officials at Nice and LivePerson declined to comment when asked by Bloomberg about the reports.

Bad Fit

Several analysts cheered last week’s divestment, saying the intelligence unit, which was forecast to generate $80 million, or about 8 percent of Nice’s 2015 revenue, didn’t fit into the company’s core strategy because it serves mainly government clients. Oppenheimer & Co. raised its price target for Nice shares to $75 from $69 on May 21, saying the divestment would lead to higher profit margins in the long term.

“It’s positive from the perspective that it allows them to better focus on their core,” said Jonathan Ho, an analyst with William Blair & Co. in Chicago. “Take a less profitable business that’s less predictable and hopefully replace it with an acquisition.”

While analysts tend to approve of Eilam’s strategy, some say the stock is becoming expensive. Five of 12 analysts covering the company have a hold recommendation on the shares. Nice trades at 19 times future 12-month earnings, compared with an average of 14.8 over the past five years.

Nice shares slipped rose 0.1 percent to $63.32 at 1:07 p.m. in New York, after dropping 4.3 percent Tuesday. The company’s Israel-traded shares fell one percent in Tel Aviv today.

“They’ve got to focus on their core competency and where they can find growth,” Ives said.

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