M&A Watch: Is LogMeIn Now Bait? (LOGM)

April 1, 2011 by Jon C. Ogg

LogMeIn, Inc. (NASDAQ: LOGM) is one of the strange situations that will make traders and investors alike question what they should do next.  Shares were halted today and the last move showed the stock up over 14% at $48.37 after having hit an all-time high of $49.50. The remote access software provider won a patent case.  We have an entirely different thought on this company.  We have been shocked that it was never acquired by a larger company and thought it could have been acquired even after its IPO in late 2009.

The company announced today that the United States District Court for the Eastern District of Virginia granted its motion for summary judgment of non-infringement.  This was in a case that had been brought by private 01 Communique.

LogMeIn also noted that the court indicated that a written order will follow and that the case has now been removed from the trial docket on May 2, 2011. 

So how does this affect the company?  The obvious is that the company has one less legal hurdle.  Software companies are all subject to potential patent suits.  Suits rarely close down companies but they do often result in royalty agreements that need to be paid.  We wondered why on earth a public company did not acquire this company back when it was still private.  The company came public at the end of 2009 before the IPO market had fully reopened and it traded under $20.00 for most of the time into early 2010 and shares went above $40.00 before the end of 2010.

After shares have risen 14% to $48.37, it should be noted that an all-time high of $49.50 was hit today.  Thomson Reuters has 2011 estimates of $0.71 EPS and $118.44 million in revenues and 2012 estimates of $0.90 EPS and $144.31 million in revenues.  Now its market cap is $1.16 billion.

The great buying opportunity may not have passed entirely yet, but the stock will start to look too expensive to many possible acquirers if shares keep rising.  The wild card in this scenario is that a larger company could massively ramp up sales compared to what LogMeIn could do on its own.  With remote access and with the realm of data security demand out there, it is hard to know what the ultimate price could be to a buyer. 

We would still not be a buyer just on hope of a merger.  Companies should only be acquired based upon the merits of an investment as a standalone entity.  Some companies will not sell regardless of the price.  LogMeIn has one hurdle behind it and we will continue to evaluate this on its own merits.

Usually a halt on Friday comes because of merger or a rumor.  This halt at 11:53 AM was ahead of its official press release regarding its patent case win.  Shares reopened at 12:50 PM EST but the stock is now a tad lower and up 11.6% at $47.06.

 JON C. OGG