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Avaya Swoops on Ubiquity

Ray Le Maistre
1/12/2007
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IP PBX giant Avaya Inc. has offered to buy SIP applications server specialist Ubiquity Software Corp. (London: UBQ) for £74.3 million (US$144.8 million) in cash, it announced early Friday. The offer, worth 37.3 pence per Ubiquity share, is being recommended by Ubiquity's board. The news sent the SIP server's stock rocketing by 16.5 pence, more than 82 percent, to 36.50 pence on the London Stock Exchange 's Alternative Investment Market (AIM). Ubiquity joined the market in May 2005. (See We're in the Money and Ubiquity Plans London IPO.)

Avaya needs the support of 90 percent of Ubiquity's shareholders and currently has about 58 percent. It expects the deal to close in about three weeks' time.

Should the takeover bid be successful, Avaya, which provides IP telephony systems to enterprise users, would land itself a company with a tried and tested SIP services platform, along with extensive telecom partnerships and some some high-profile carrier customers, including BT Group plc (NYSE: BT; London: BTA) and BCE Inc. (Bell Canada) (NYSE/Toronto: BCE).

(See Ubiquity Enhances Server, Ubiquity Teams With Microsoft, Huawei Deploys Ubiquity, Global Crossing Picks Ubiquity, Ubiquity Leads New Round of 21CN Deals, Lucent Integrates Ubiquity Tech, and Ubiquity Moves Closer to AT&T.)

And with SIP application servers being a critical element in carrier IP Multimedia Subsystem (IMS) architectures, it would also give Avaya a foothold in one of telecom's hottest, and most contentious, markets. (See IMS Apps in Anarchy, Cisco Kills Initial IMS Platform, Is the IMS Honeymoon Over?, and VOIP, IMS Sales Rise.)

That would represent something of a shift for Avaya, which has been focused on enteprise telephony gear. "Avaya is a surprising purchaser, because the match isn't instantly obvious" in terms of their respective markets, says Heavy Reading senior analyst Graham Finnie. "Avaya is focused on enterprise, Ubiquity on carriers. But if Avaya just wants a decent programmable SIP server, then Ubiquity has one of the best, and it's experienced. It's probably the market leader, though it's a very niche market.

"One thing Avaya might be interested in is Ubiquity's existing work in Web services, which is interesting a lot of enterprise users. But does Avaya just want Ubiquity for its technology? Or does it have plans for the carrier market?" (See Ubiquity Supports SOA.)

The answer is more the former than the latter. Avaya is not making any specific comments until the deal is done, but a spokeswoman says the company is looking at having a single software applications development platform for both enterprises and service providers.

The spokeswoman says the move does not signal a new strategy to specifically target the telecom carrier sector, but the firm wants to ensure it has a SIP applications environment that's appropriate for carriers as well as its traditional enterprise customer base and that can be used by .NET and J2EE developers.

"This is all about moving into the software applications development world," she adds.

Ubiquity's EMEA marketing director, Naresh Chouhan, says he doesn't expect any change to Ubiquity's predominantly carrier-focused strategy should the acquisition go through, but he notes that its VOIP and conferencing products are deployed by enterprise users. He says these sales have come through channel partners such as HP Inc. (NYSE: HPQ). (See Ubiquity Unveils IP Conferencing and Ubiquity Targets VOIP.)

Chouhan says Ubiquity currently has 12 named carrier customers, from Tier 1 to small carriers and ISPs, but has "about 120 carriers in the pipeline, in trials, or in discussions." (See Tello Builds on Ubiquity.)

This suggests that Avaya has picked out one of the SIP application server sector's best prospects. However, the market is nascent and lacking conformity, as Finnie noted in a recent column on Light Reading. The market has "all the clarity of a pool of mud," he wrote. (See IMS Apps in Anarchy.)

In the six months to June 30, 2006, Ubiquity reported revenues of £6.1 million ($11.9 million), up 73 percent year-on-year, and a net loss of £3.7 million ($7.2 million). (See Ubiquity Reports H1.)

Prudential Equity Group LLC analyst Inder Singh believes the acquisition is likely to be dilutive to Avaya's earnings in fiscal 2007 (year ends September 30) and possibly even the year after as well. In fiscal 2006, Avaya reported net income of $201 million, or 43 cents per share, from revenues of $5.15 billion.

Avaya's share price is down $0.48, nearly 3 percent, today at $14.22.

— Ray Le Maistre, International News Editor, Light Reading

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