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Amdocs Buys Xacct (At Last)

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News Analysis
Light Reading
12/22/2003
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Billing giant Amdocs Ltd. (NYSE: DOX) finally splashed some cash on mediation system specialist Xacct Technologies Inc. today, hoping to bring itself up to snuff with its key competitors (see Amdocs Buys Xacct).

Amdocs is paying $13.5 million in cash and $16 million in stock for fellow Israeli firm Xacct, which has about 70 service provider customers and annual revenues believed to be upwards of $20 million. Xacct had raised $87 million in funding since its launch in 1997.

The deal has had little impact on Amdocs' share price, which currently stands at $22.30, down 16 cents, less than 1 percent, from Friday's closing price of $22.46.

And Amdocs is getting one of the best known mediation firms in the world for its money. In a recent Heavy Reading OSS market perception study (see Heavy Reading Takes on OSS), Xacct was ranked as the second most recognized name in the mediation market -- behind Hewlett-Packard Co. (NYSE: HPQ) -- with nearly 50 percent of operator executives with knowledge of that sector recognizing it as a player. Xacct was ranked third overall in the survey's mediation category once scores for price, performance, quality and reliability, and service and support were taken into account. It was beaten only by HP and Intec Systems Inc.

But while the price may not seem too high for an established OSS player, OSS Observer analyst Mark Basham thinks Amdocs could have paid less: "This was a distressed sale. Xacct has some good technology, but it has been cutting back its staff for a while and has been in financial difficulties for at least a year or so. I think Xacct's investors might have been pushing very hard to get some cash as part of the deal, and at that price it may be that someone might have been doing a friend a favor."

In the summer, Xacct claimed to have about 110 on staff, but it is unknown how many are left and making the move to Amdocs, and whether the company's headquarters and a development center in Santa Clara, Calif., and another R&D site in Tel Aviv, are to be retained. Amdocs had not responded to questions as this story was published.

Rumors have been rife for some time that the deal was about to close (see Amdocs, Xacct Diss Takeover Talk), and insiders had often leaked stories to the Israeli business press of teams of Amdocs executives roaming Xacct's corridors. Past reports had also alleged a series of offers from Amdocs, some citing hundreds of millions of dollars before the bubble burst, that had been rejected by Xacct's backers for being too low. Anyone for schadenfreude?

So why would Amdocs want Xacct anyway? Well, it gives the software and services firm its own mediation technology, something its main billing system rivals Convergys Corp. (NYSE: CVG) and CSG Systems International Inc. (Nasdaq: CSGS) already have. Each of the main billing system players has been building a broader range of technical capabilities around its core billing components for some time.

The move follows several other recent acquisitions in the mediation system sector (see Openet Buys Sepro for a Song and Intec Snaps Up Digiquant), and analysts such as Basham expect further consolidation in the OSS market.

— Ray Le Maistre, International Editor, Boardwatch

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