M&As and IPOs

Top of Mind

M&As and IPOs

By Paula Bernier, Executive Editor, TMC  |  March 01, 2012

This article originally appeared in the March issue of INTERNET TELEPHONY magazine

As discussed in INTERNET TELEPHONY’s January cover story, despite the prolonged economic drag, only slightly improving employment numbers, a depressed housing market and the sovereign debt crisis, business as a whole – and related to the communications industry in particular – is doing quite well. That has created an environment that’s more welcoming of mergers and acquisitions and IPOs than what we saw in the recession-era years, in which M&A and new stock offers came to a relative standstill.

Given I’ve spent most of my 20-some years in the industry reporting on the Bells and other communications service providers, one of the key deals that stands out in my mind is Ericsson’s (News - Alert) recent purchase of Telcordia. This $1.15 billion acquisition had one of two leading providers of both wireline and wireless network infrastructure and services to the world’s major service providers, envelope the former research and development of the Bells, which has a strong operational support and billing portfolio, not to mention what I imagine is a treasure-trove of intellectual property.

Telcordia (News - Alert), formerly known as Bellcore, has for years focused on all the messy behind-the-scenes stuff that makes telephone, and now broadband, networks so wonderful and reliable. As the communications environment changed, and things got more competitive, the former Bellcore was spun off as its own entity, renamed Telcordia, and pushed to expand its solutions to others beyond just the former RBOCs. The company had limited success in that last part, but Telcordia’s importance in back office network systems cannot be underestimated. And, as networks and the services offered over them continue to evolve, so too have Telcordia and the back office systems that support service provider networks.

As Grant F. Lenahan, vice president and strategist for service delivery solutions at Telcordia, now part of Ericsson,  discussed in his September 2011 column in Next Gen Mobility (a sister magazine to INTERNET TELEPHONY) services traditionally have been facilities like voice or data lines, or connectivity tied to specific devices. “This lent itself to a few, big, monolithic, expensive, entirely internal, massively scalable management processes, exhaustively tested,” he added. But the nature of the operators’ business is changing.

“The biggest difference I see is that software-enabled services will be simpler, but there will be many more of them,” he said. That means service providers and their partners need the ability to bring up, and if needed take down, services more quickly.

As Martin Sundbladd, director of portfolio management at Ericsson said in a mid-January call following the close of the Telcordia deal, all this means that “the cost of producing services needs to come down, and we need to prepare ourselves for that.”

The integration of the companies is slated to be complete by the end of this year. Telcordia, which is currently a sub unit within Ericsson’s business unit multimedia group, keeps its current organization structure. 

Speaking of M&A, one recent rumored development on this front indicates Avaya (News - Alert) has bid $200 million for Radvision. According to a mid-December story by Forbes, the Israeli videoconferencing company was at the time in “advanced talks” to be bought by Avaya, which declined INTERNET TELEPHONY’s request in mid January to comment on the matter.

The Forbes story says Radvision (News - Alert) “has been struggling – and reportedly looking for a buyer – since Cisco, the company’s largest customer, acquired rival video conferencing company Tandberg for $3.3 billion in 2009.”

Meanwhile, while we all continue to wait for the gianormous Facebook IPO, there were a good amount of initial public offerings in 2011 and expectation for a healthy market in 2012, at least according to PricewaterhouseCoopers.

In its year-end outlook for the U.S. IPO market, PwC noted that as of Dec. 16, there were 28 pricings, which raised $6.4 billion in the fourth quarter of last year; new filing activity remained robust in fourth quarter, with 38 companies entering the pipeline; there were larger offerings and a diversification of industries in the IPO pipeline – namely technology and energy companies; 18 of the 28 IPOs were backed by a financial sponsor (either a PE or VC firm), which accounted for $4.9 billion of total fourth quarter proceeds; and there was a steep decline in the volume of foreign issuers coming to the U.S., with only four offerings.

“The market reignited in December with the return of larger offerings, including Michael Kors and Zynga (News - Alert), which combined with Groupon and Delphi raised $3.2 billion – half of fourth quarter total proceeds,” according to PwC. “The surge in activity and relative strength in the number and diversification of industries in the IPO pipeline are early signs of a healthier IPO market in 2012, according to IPO Watch, a quarterly and annual survey of IPOs listed on U.S. stock exchanges by PwC’s transaction services practice.”

Edited by Jennifer Russell