One of the leading telecommunication companies in the U.S., Telephone and Data Systems Inc. (TDS - Analyst Report) has acquired Vital Support Systems, LLC for $45 million. Vital is an Iowa-based provider of enterprise solutions for IT infrastructure. The company has 140 employees and reported annual revenue of $76 million in 2011.
The acquisition is expected to support Telephone and Data Systems’ hosted and managed services (HMS) business, which has been a significant growth driver for the company. Vital is expected to boost the company’s technical capabilities by supporting data center infrastructure, hosting and cloud-based offerings provided through Telephone and Data Systems’ HMS services.
Additionally, it is expected to aid in the expansion of business in Midwest regions with its offices in Des Moines, Cedar Rapids, and Davenport in Iowa, Omaha in Nebraska, Kansas City in Missouri and Rockford in Illinois.
Having benefited by most of the business takeovers to date, acquisitions play a key role in Telephone and Data Systems’ business structure. The telecom provider has significantly expanded and tapped new business opportunities by acquiring several companies.
Telephone and Data Systems expanded its offerings in the cloud computing sector though its purchase of VISI Inc. and TEAM Technologies in 2010. Last year, the company acquired OneNeck IT Services Corporation to further expand its operations in managed hosting and cloud services offerings. Telephone and Data Systems aims to continue evaluating various acquisition opportunities not only in managed services but also in traditional ILEC markets.
However, fierce competition from mega carriers like Verizon Communications Inc. (VZ - Analyst Report) and AT&T Inc. (T - Analyst Report), as well as heavy investments in uncertain market conditions may pose significant threats to the company. Further, regulatory issues regarding Universal Service Fund are also likely to weigh on its near-term revenue growth.
We are currently maintaining our long-term Neutral rating on Telephone and Data Systems. The company holds a Zacks #3 Rank (Hold).