BlackBerry Ltd (BB 2.65%) is acquiring Good Technology, a maker of mobile device management and security software. The acquisition further demonstrates BlackBerry’s move toward mobile device services, security, and Internet of Things.
Blackberry will be buying privately held Good Technology for $425 million in cash, or using approximately 14% of its $3 billion in cash and short-term investments -- certainly not a huge acquisition, but fairly large for a company that has continued to struggle and is unprofitable.
Playing to BlackBerry’s Strengths
Foolish followers of BBRY have probably noticed the much intended change at BlackBerry to go from a phone hardware manufacturer to more of a software and security company. Even their press releases begin with “BlackBerry -- a global leader in secure mobile communications…” Approximately 40% of the company’s revenue came from hardware last quarter compared to 38% for services, and 21% for software and technology licensing.
Specifically, BlackBerry is looking to use their expertise and reputation for security and expand into the Enterprise Mobile Management, or EMM, market. Good Technology will help BlackBerry’s strategy to offer a complete product that secures mobile devices across a company’s network, regardless of which operating system, device, or apps the person is using.
This strategy plays on the “BYOD” or “bring-your-own-device” as well as the “corporate owned, personally enabled” trend, where users do not want to have separate devices for work and personal life due to security or management issues. Nobody wants to lug around an extra BlackBerry phone for work e-mail when their preferred phone is an iOS or Android device. Instead, companies are finding ways to let people use their devices as they want, but still get the security and management they need.
Like BlackBerry, Good Technology has a lot of corporate and government clients where security and device management is paramount. This will further enhance BBRY’s position in these spaces, especially vertical industries like government, finance, law and increasingly healthcare. According to the press release, “Good [Technology] serves…all of the Fortune 100 commercial banks, aerospace and defense firms…” The two companies will have some overlap that will need to be addressed, but it also takes out one of BBRY’s competitors in the space. For example, this Verge article dug up some catty marketing material from BBRY that illustrates the former rivalry between the two.
This isn’t the first acquisition in the EMM space for BlackBerry. The company recently closed their acquisition of WatchDox, a service that allows users to protect, share and work on their files across all mobile operating systems along with PCs. The company will be integrating WatchDox into its BES12 Enterprise Mobility Management product, again emphasizing BBRY's move toward security and supporting all operating systems.
More Opportunities Ahead?
Management estimates the acquisition to be completed toward the end of the company’s 2016 fiscal third quarter and expects to realize approximately $160 million in GAAP revenue in the first year -- not a lot to boost the top line for a company with revenue currently running at approximately $2.5 billion per year. Further, Good Technology is still unprofitable, so BlackBerry management will need to find a lot of overlap and other expenses to cut in order to realize any profits in the near future.
But the acquisition speaks to the larger goal and potential turnaround of BBRY. Already the company is talking about using Good’s technology to support wearables and BBRY is keenly aware of the Internet-of-Things trend. As more devices, vehicle fleets, tools, and other mobile assets become connected to corporate networks, these will all need to be managed and secured.
Blackberry is nowhere there yet -- the most recent acquisition is small and it will take time to integrate their technology and clients into a unified platform. Therefore, investors shouldn’t be snapping up BBRY shares on this news alone, but the development and slow transformation of BBRY should be watched closely as the need for mobile device management and security is already present and will continue to be a huge potential area of growth in the near future.
