Reviewing Verizon’s M&A Activity In 2016

While its rival AT&T (NYSE:T) grabbed most of the headlines this year after announcing a deal to buy media behemoth Time Warner for about $85 billion, Verizon (NYSE:VZ) has also been on an acquisition spree of sorts. The largest U.S. wireless carrier spent upwards of $11 billion to beef up its capabilities in new verticals such as media, advertising and Internet of Things, in addition to making some deals in its core telecom business. Below we take a brief look at some of Verizon’s acquisitions this year, and how they could benefit the company over the long run.

We have a price estimate of $56 for Verizon’s stock, which is about 15% ahead of the current market price.

See our complete analysis for  Verizon | AT&T |T-Mobile| Sprint 

Focusing On The Most Profitable Segments Of The IoT Market

Verizon has been investing relatively heavily on the application side of the IoT ecosystem this year. In the telematics and connected vehicle space, the carrier acquired a software firm called Telogis in June, while announcing a deal to buy Irish fleet tracking firm Fleetmatics in August for about $2.4 billion. Verizon also bought Sensity Systems, a startup that specializes in Internet of Things (IoT) platforms for smart cities, in addition to buying  LQD WiFi, which produces smart kiosks that provide Wi-Fi, community and location information for cities.

According to research firm IDC, the worldwide Internet of Things market will grow at a CAGR of roughly 16.9% to about $1.7 trillion by 2020, with the market largely broken down into three segments, namely devices, connectivity, and IT services. Verizon is focusing on software platforms and connectivity, which could end up being the two most lucrative IoT segments, as the device market is likely to be highly commoditized. (related:How Verizon Is Targeting The Most Lucrative Segments Of The IoT Market)

Doubling Down On The Digital Ad Space 

Verizon also made several acquisitions in the media and advertising space since its acqusition of AOL last year. The carrier entered into an agreement to buy Yahoo’s core internet business in a cash deal worth about $4.8 billion, allowing it to make inroads into the search engine and native ad market, while also bringing in a audience of about a billion monthly active users on key online properties such as Yahoo Mail and Tumblr (related: Verizon Buying Yahoo: Analyzing The Benefits And Challenges). Verizon also purchased Volicon, which offers video monitoring and analysis tools for broadcasters. The carrier has also been making more content-focused deals, acquiring web video platform Vessel and Complex Media, an online publisher. Unlike AT&T, which has been focusing on the premium content space with the DirecTV and Time Warner deals, Verizon’s approach appears to be geared towards lower cost or free content aimed at millennial audiences.

XO Communications Deal To Bolster Core Business

Verizon will acquire the fiber-optic business of XO communications in a $1.8 billion deal that is expected to close in early 2017. The acquisition should allow the carrier to better provide broadband services to its enterprise and wholesale customers, while improving its wireless backhaul as it continues to densify its cellular network. XO’s national network, which runs at speeds of 10 gigabit per second, could also be crucial to Verizon as it focuses on rolling out next-generation 5G wireless networks.

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