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Tyler Technologies To Buy NIC For $2.3B; Shares Pop

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Tyler Technologies, an integrated software and technology services provider, has agreed to snap up NIC in a cash-deal worth $2.3 billion. NIC shares closed nearly 15.7% higher on Feb. 10, while Tyler jumped around 6.6%.

Per the terms of the deal, Tyler (TYL) will pay $34 for each share of the Kansas-based digital government solutions and payments company. The price tag represents a 14% premium to NIC’s closing price on Feb. 9. Tyler will finance the transaction using $700 million cash in hand and new debt. The deal will partly be financed with a $1.6 billion bridge facility provided by Goldman Sachs.

The combination of NIC’s (EGOV) expertise and Tyler’s sales channels and client base, is expected boost business with federal agencies. Tyler’s strategic payments initiatives are also expected to increase.

The transaction, which awaits NIC shareholder approval and certain regulatory approvals, is expected to close in the second quarter of this year. The deal is likely to be accretive to Tyler’s adjusted earnings and EBITDA, recurring revenue mix, and free cash flow per share, in 2021. (See Tyler stock analysis on TipRanks)

Tyler CEO Lynn Moore said, “The pandemic has accelerated the shift by governments to online services and electronic payments as more citizens and businesses are interacting digitally with government. NIC is uniquely positioned with its deep expertise and robust digital solutions to partner with us in making government more efficient and more accessible to citizens.”

Tyler also reported 4Q and FY20 results. The company’s 4Q adjusted earnings fell 2.8% to $1.39 per share on a year-over-year basis and missed Street estimates of $1.42 per share. Adjusted revenue decreased 1.4% to $283.41 million and came in below analysts’ expectations of $291.48 million.

As for 2021, the company expects adjusted total revenues to be in the range of $1.19 billion to $1.22 billion. Adjusted earnings per share are forecasted to be in the range of $5.65 to $5.77. Guidance excludes the impact of any acquisitions, which might close during the year.

Following the deal announcement and 4Q results, Oppenheimer analyst Andrew Uerkwitz reiterated a Hold rating on the stock. The analyst said, “We view this opportunity as complementary, as NIC and TYL offerings have little overlap, and will allow TYL to increase its presence in both state and federal sectors.”

Uerkwitz expects “top-line growth to increase to 7% in FY21, excluding any NIC contribution, as state and local budgetary concerns clear up in the near term.”

Wall Street analysts are cautiously optimistic on the stock’s outlook. The Moderate Buy consensus rating breaks down into 1 Buy rating and 2 Hold ratings. The average analyst price target stands at $415 and implies downside potential of 7.9% to current levels over the next 12 months. That’s after shares jumped 36.7% over the past year.

TipRanks’ Hedge Fund Trading Activity tool shows that confidence in TYL is currently Negative as 7 hedge funds trimmed their cumulative holdings by 23,000 shares in the last quarter.

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