Ness Technologies Inc (NSTC)

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Buying Slovakian firm Delta rounds Ness' Eastern Europe presence, says Merrill Lynch


TheMarker 03.7.2005 / 15:17

Tel Aviv-based Ness Technologies (Nasdaq:NSTC) said on Thursday it is buying out Slovakia's privately held Delta Electronic Services for $7.75 million cash and on Friday Merrill Lynch released a Buy investment recommendation. The company's acquisition, its third in Eastern Europe, rounds out its presence there, the investment bank says.

The information technology services provider said it will pay an additional amount of up to $3.25 million if Delta achieves certain business goals by the end of 2005 and during the first quarter of 2006. "We view the deal favorably as it rounds out Ness' presence in Eastern Europe and fits with Ness' strategy in smaller geographies, which is to establish local market leadership with a full array of services," wrote Gregory Smith and Jennifer Dugan.

For 2004 Delta reached revenues of $18 million, Merrill Lynch says, and Ness expects the transaction to be mildly accretive this year, and more so from 2006 onward.

Ness is expanding fast. On June 10, it the Czech company Efcon and earlier in the second quarter, in April, it acquired the Romanian company Radix. Ness means to rename its new Slovakian firm Ness Slovakia.

Merrill Lynch writes that in its humble opinion, Ness represents a "unique growth opportunity in the IT services space", providing an answer to the growing demand for low-cost offshore services, plus higher growth verticals including in defense, pharmaceuticals and R&D for other companies.

The investment bank's 12-month price target is $17, which is 18 times estimated 2006 earnings per share, representing somewhat of a discount for Ness compared with peer companies. The investment bank is somewhat deterred by Ness' relatively small size, relatively unknown history and experience as a Nasdaq-listed company, and Israel specific risks, Merrill Lynch adds.

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