Why Jabil Stock Swooned by 7% on Monday
Key Points
It announced a new acquisition.
It's paying around $725 million for Hanley Energy Group, and could also be obligated to an additional $58 million in contingency payouts.
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A new acquisition announced by electronic components maker Jabil (NYSE: JBL) on Monday wasn't greeted warmly by Mr. Market. Investors traded out of the company on news of its latest deal, to the point where the stock lost more than 7% of its value that trading session.
Starting off the new year with a new asset buy
That morning, Jabil announced that it is now the owner of privately held Hanley Energy Group, which specializes in energy management and critical power solutions targeting the data center segment. The deal closed last Friday, and was effected in cash at a price of roughly $725 million. Jabil is also on the hook for as much as $58 million in contingent considerations.
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In the press release trumpeting the asset buy, Jabil leaned hard on its synergistic qualities.
The company quoted executive vice president of global business units, intelligent infrastructure Matt Crowley as saying of Hanley that its "know-how and capabilities complement Jabil's existing power management solutions for data centers and will help us deploy and service them down to the rack level."
Details wanted
In that press release, Jabil did not provide details as to how it is funding the Hanley acquisition. Investors tend to dislike such a lack of particulars, which is likely one reason for Monday's sell-off.
To me, however, given the numerous build-outs occurring in the data center space to handle the increased resource needs of artificial intelligence (AI), it makes a lot of sense to push hard into this segment. Jabil is doing exactly that, and with a company that has true global reach (Hanley has 13 locations around the world, spread across four continents). I think this will be a long-term win for Jabil.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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