Allot Ltd. (Nasdaq: ALLT) has agreed to acquire peer-to-peer (P2P) and online video caching management specialist Oversi Networks Ltd. in a deal worth up to US$21 million.

Deep packet inspection (DPI) vendor Allot is paying $16 million up front for its fellow Israeli company and then up to $5 million more, depending on Oversi's 2012 performance. Oversi, which boasts a number of telecom and cable operators amongst its customers, generates revenues of about $2 million per quarter and has raised more than $13 million from investors, including Cisco Systems Inc. (Nasdaq: CSCO). (See Oversi Signs Nine.)

Allot says it has seen "an increase in customer interest in video caching solutions" during the past year and plans to integrate Oversi's technology into its Service Gateway platform.

The announcement comes only three months after Allot announced it was buying video optimization firm Ortiva Wireless. (See Allot Snaps Up Ortiva Wireless .)

Allot announced the planned acquisition as it reported a 43 percent year-on-year rise in second quarter revenues to $26.4 million and a 68 percent increase in net profit to $2.7 million. The results were better than expected and sent Allot's share price up by 6.7 percent to $26.34 in pre-market trading early Tuesday.

Why this matters
The ability to manage, store and deliver Internet video and other online content is becoming increasingly important to all types of service providers, including mobile operators. Allot's own research, based on feedback from its customers, suggests that video eats up more than half of the bandwidth on fixed line networks and comprises 42 percent of mobile data traffic. (See CDN: Build or Buy?.)

So it's important for Service Provider Information Technology (SPIT) specialists such as Allot, which has always focused on ways to identify data traffic and help manage network capacity accordingly, to have as many video-related tools as possible in its portfolio. Oversi's caching technology appears to complement the video optimization capabilities brought on board from Ortiva, so Allot is certainly trying to meet the needs of service providers that are looking to build video traffic management smarts into their networks.

The move also gives Allot a stronger hand when pitching for new business against the giant vendors that have increasingly encroached on the policy control and enforcement market (the latter function being the domain of the DPI vendors). (See Policy Specialists Squeezed by Vendor Giants.)

The news may not be so good for PeerApp Ltd. , Allot's current video caching partner. In its press release, Allot noted that the growth in demand for video caching capabilities "made clear to us the critical need for Allot to own a leading solution in this growing market instead of reselling a third-party offering."

For more

— Ray Le Maistre, International Managing Editor, Light Reading