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February 05, 2013

Acme Packet/Oracle Deal Only the Beginning

By Doug Mohney, Contributing Editor

Oracle's in-progress purchase of Acme Packet (News - Alert) for $1.7 billion (net) in cash is a great wake-up call.

Financial analysts and companies in the IP communications space are running around trying to spin this story to their favor, but I'm not even willing to concede that the deal will close without at least one suitor taking a run at Acme.

Financial data indicates Oracle's (News - Alert) offer is more than six times Acme Packet's sales over the past 12 months. That's a bit high, with three to four times yearly sales a typical price premium. Factor in Acme's declining profit margins over the past six months and you can understand why Oracle's stock price took a hit.

Could Acme Packet get more? There's at least one law firm "investigating potential claims" against Acme's Board of Directors for essentially selling too cheaply and not adequately shopping the company around, citing the rise in the company's stock price going from $15.29 in late October 2012 to $24.42 on January 22, 2013 – and one analyst setting a target price of $30 per share for the company.

Don't read too much into the lawsuit talks; it's a relatively (unfortunately) common occurrence. However, I am curious if Cisco put an offer on the table for Acme Packet, and if so, how much. 

IBM (News - Alert), believe it or not, would also be on my short list. 

Acme's story has been moving beyond the SBC space into service delivery networks (SDN) and its strength in security along with a move into software-based solutions would fit nicely with IBM's enterprise focus.

I wouldn't be surprised if there was at least one "hostile" bid put on the table before Oracle closes, but there are very few companies that will have the cash to outbid the current deal.

From Acme's perspective, it likely boils down to two things: Cash and solid access to the enterprise space.  I've seen crack-brained speculation that Oracle is doing the deal to move hardware – who are these people and why do they have paying jobs? Everyone in the IP communications industry has been moving out of hardware and dedicated servers, so do not say this is a deal motivated to sell more Sun hardware. 

The best margins and profits are in software, service contracts for software upgrades and services to get the most out of the software – not gear.

Beyond Acme Packet, there’s a bunch of other companies now doing a happy dance as analysts speculate on their future. GENBAND, Metaswitch and Sonus Networks (News - Alert) all come up in the whole "Who's going to buy the next SBC vendor?" discussion, with Broadsoft thrown in for good measure because of its share of the softswitch/application server marketplace. 

There's also the potential for smaller companies like AudioCodes (News - Alert) and Sangoma to get scooped up by a larger player if a big M&A wave starts to happen.

Edited by Braden Becker
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