Veritas Rumored to Swallow BlackBerry Whole

Wall Street’s infatuation with artificial intelligence (AI) is starting to expand beyond the obvious names. If you didn’t buy NVIDIA (NSDQ: NVDA) when I reviewed it three years ago, it’s too late now. Since then, its share price has more than quadrupled.

As I discussed earlier this year, that has everyone “Searching for the Next NVIDIA.” As I said then, “Surely, somewhere out there must be a small company with a great product that Wall Street has overlooked.

Apparently, private equity firm Veritas Capital believes one of those small companies with a great product is BlackBerry (NYSE: BB). Last week, Reuters reported that Veritas recently made an offer to acquire BlackBerry.

If you haven’t been following BlackBerry lately, it is no longer in the smartphone business. They sold all those patents and reinvested the proceeds into other growth markets.

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These days, BlackBerry’s focus is on cybersecurity and the Internet of Things (IoT). The cybersecurity business is struggling to win new business, but the IoT unit is thriving thanks to its autonomous driving software.

According to BlackBerry, its “QNX software is now embedded in over 235 million vehicles worldwide; a year-over-year increase of 20 million.” That list includes BMW (OTC: BMWYY), Honda (NYSE: HMC), Toyota (NYSE: TM), Volkswagen (OTC: VWAGY), and Volvo (OTC: VLVLY).

The company claims it produces “the automotive industry’s most secure and safety-certified embedded software, trusted by most leading OEMs and Tier 1s.” Over the next three years, BlackBerry is projecting its IoT revenue to grow at a compound annual growth rate (CAGR) of 18 – 22%.

Critical Technology

Fifteen years ago, BlackBerry was one of the most popular stocks on Wall Street. In June 2008, BB peaked above $148 (split-adjusted).

But then Apple introduced the iPhone. Since then, BlackBerry has taken a beating. Last week, it was trading below $5 before the Veritas rumor nudged it above that mark.

With a market cap of roughly $3 billion, BlackBerry barely qualifies as a mid-cap stock. It’s too small to move the needle for most institutional investors, so they ignore it.

However, BlackBerry’s success in the autonomous driving market makes it attractive to Veritas. The fund manager proclaims that it prefers to “invest in companies that provide critical products and services to governments, government-influenced markets, and commercial customers.”

Autonomous driving is not overtly a government-influenced market like aerospace and defense. But it is a critical technology that is necessary for the USA to compete with foreign carmakers.

None of the carmakers listed above are domiciled in the United States. However, all of them employee hundreds of thousands of Americans at their factories in the lower 48.

For the USA to remain competitive in automobile manufacturing, it needs access to state-of-the-art autonomous driving software. What it does not need is for BlackBerry’s AI patent library to become the private property of an overseas rival.

Bear in mind, BlackBerry is domiciled in Canada so its fall outside the purview of US regulators. If a Chinese company wanted to buy BlackBerry, there isn’t much the Biden administration could do to stop it from happening.

Veritas Capital is headquartered in New York City. If it acquires BlackBerry, then all its intellectual property would come under the supervision of the federal government.

Patents Pending

The long-term growth potential of autonomous driving is big enough to justify acquiring BlackBerry. According to Allied Market Research, “The global autonomous vehicle market was valued at $76.13 billion in 2020, and is projected to reach $2,161.79 billion by 2030, registering a CAGR of 40.1% from 2021 to 2030.

There aren’t many markets that can grow at a 40% CAGR over an entire decade. There also aren’t many markets that are as large and as global as automobile manufacturing.

In a nutshell, that is why Veritas may be interested in acquiring BlackBerry. For a relatively small sum of money, Veritas could immediately gain access to a high growth market.

Veritas would also gain ownership of BlackBerry’s patent library. As the IoT market expands due to increased AI applications, the value of those patents could escalate rapidly.

If Veritas does end up buying BlackBerry, don’t be surprised if the company goes public again a few years hence after it has unloaded its cybersecurity business. At that point, BlackBerry could be viewed by Wall Street as a pure play on AI.

For that reason, I would also not be surprised if a bidding war of sorts breaks out for BlackBerry. It isn’t often that a company with a competitive AI product can be bought on the cheap.

If this rumor proves true, then I’d also expect to see more M&A (merger and acquisitions) activity in the autonomous driving space. If Wall Street is searching for the next NVIDIA, then it may want to start out by looking for the next BlackBerry.

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