Subex Ltd. is raising $200 million to help fund its ambitious strategy to become one of the telecom software sector's elite leading vendors.

The Indian revenue assurance firm today announced it has "entered into a conditional contract" to buy highly-regarded OSS firm Syndesis Ltd. for $164.5 million in cash. That makes it the latest in a string of OSS acquisitions that's reshaping the sector. (See Syndesis Strikes $165M Takeover and M&A Reshapes OSS Sector.)

The "conditions" aren't related to the terms of the takeover, says Subex's CEO Subash Menon. He says that wording is a legal requirement as his company is in the process of issuing GDRs (global depositary receipts that are worth one Subex Azure share each) and convertible bonds "in non-U.S. markets" to raise $200 million in cash to fund the acquisition.

And once the acquisition closes, Menon says his company will be ready to take business away from the OSS sector's big boys -- namely, Amdocs Ltd. (NYSE: DOX), IBM Corp. (NYSE: IBM), Oracle Corp. (Nasdaq: ORCL), and Telcordia Technologies Inc.

So he's not short on ambition. But Subex Azure, which even after the Syndesis acquisition will be little more than a $120-million-a-year company at most, has a long way to go before it can match the might of rivals like Amdocs, a $2.9-billion-a-year company, or Telcordia, which still pulls in more than $730 million in sales per year.

The other main players are much bigger, too. Micromuse was a $160-million-a-year business before it was acquired by IBM, which then went on to buy performance management player business Vallent, with annual revenues near $70 million. MetaSolv, Oracle's most recent telecom software acquisition, has revenues approaching $100 million a year. (See IBM Tiptoes to Telecom With Micromuse, IBM Buys Another OSS Firm, and Oracle Buys More OSS With MetaSolv.)

Menon, then, has his work cut out. But the CEO has massive confidence and self-belief, believing he can replicate the success Subex has enjoyed in the revenue assurance sector, where it is the market leader. According to OSS Observer research, it held a near 30 percent market share of a $216 million market in 2005.

So what's the plan? Well, it doesn't involve trying to muscle in on Amdocs' main market, retail billing. Instead, Subex will focus on its own core market of revenue assurance (or "revenue maximization" as Menon calls it) and the service assurance and fulfillment markets in which Syndesis already competes. (See Who Makes What: OSS .)

"Carriers need operational dexterity," says the CEO, which involves keeping costs low and maximizing revenues. Menon says the revenue assurance products are already doing the former, while the automated fulfillment capabilities Syndesis has developed help carriers deliver on-demand services, such as IPTV.

And Menon says some of the large OSS firms "have significant weaknesses, and we have a track record of winning business against larger players. We're very focused, very agile, and put a lot of R&D into our products. India is a good and strong software development space, and we bring a lot of support services to the table. A lot of these other companies have their strengths, but we're not second to anyone in terms of product capabilities, and we have the best and most focused customer and product support. We're not worried about the competition."

At least a combined Subex/Syndesis will not be starting from scratch. Syndesis has more than 20 carrier customers for its service provisioning, service activation, order management, data integrity, and inventory management products, which generated revenues of $45 million in 2006. Menon says the company is profitable from a net income perspective.

Many of those customers are Tier 1 carriers, including AT&T Inc. (NYSE: T), Verizon Wireless , Verizon Enterprise Solutions , Qwest Communications International Inc. (NYSE: Q), BT Group plc (NYSE: BT; London: BTA), Telecom Italia (TIM) , and Telstra Corp. Ltd. (ASX: TLS; NZK: TLS)

Subex Azure, which generated $22.5 million in revenues in its most recently reported quarter (to September 30, 2006), already boasts 28 of the world's top 50 carriers as its customers, and says the Syndesis acquisition will take that number up to 32 of the Top 50.

The company could grow bigger with further acquisitions. Menon says that while there are no more deals ongoing, some of the remaining cash from the $200 million being raised could be used to buy more companies. "We have always been on this track, and we'll continue to build this way."

But the current deal needs to close first. Menon says no decision has been taken yet about whether all 300 or so Syndesis staff will be retained. However, Subex plans to hang on to and exploit the extensive range of partners Syndesis has built up during its 10-year life, including Alcatel-Lucent (NYSE: ALU), Cisco Systems Inc. (Nasdaq: CSCO), Convergys Corp. (NYSE: CVG), Juniper Networks Inc. (NYSE: JNPR), Nokia Corp. (NYSE: NOK), and Nortel Networks Ltd. . (See Alcatel, Syndesis Partner and Nortel Publicizes Partners.)

— Ray Le Maistre, International News Editor, Light Reading