Here’s what analysts have to say about Singtel’s costly Trustwave acquisition

Earnings will be sacrificed in the name of stronger market position.

Analysts believe that Singtel’s $1.15b (US$810m) acquisition of US-based cyber security firm Trustwave will strengthen its market position but will impact earnings in the near term.

“The acquisition will be EPS dilutive. It is a necessary buy as many of Singtel’s customers are global MNCs wanting a single provider that is accountable for all their security protection needs worldwide. This would not be possible if Singtel were to just form partnerships,” said Maybank Kim Eng analyst Gregory Yap.

Yap also warned that there may be more dilutive acquisitions ahead as the Trustwave acquisition is not part of th $2b budget that Singtel has earmarked for digital investments.

Meanwhile, DBS analyst Sachin Mittal noted that the business has exciting growth potential but received mixed reviews from tech research companies.

“The market is very fragmented with each player having single-digit market share. Trustwave (1.6% revenue share globally) has received favourable reviews from Forrester and IDC but lags in the Gartner’s Magic Quadrant due to its niche offerings and weak execution. We hope Singtel can give Trustwave a headstart in Asia and provide financial support to grow its US and European businesses,” Mittal stated.

S&P analysts Mehul Sukkawala and Paul Draffin believe that the Trustwave acquisition is distinct from Singtel's strategy of pursuing investment opportunities in the digital life segment

“We expect the acquisition to strengthen Singtel's market position in the information security business but not materially change our view of the company's competitive position. We believe Singtel will remain disciplined in its acquisition strategy, given its limited financial headroom and the high valuations of digital companies,” they noted.