ATCA/Standard Servers

M&A Move Puts ATCA in the Spotlight

Radisys Corp. (Nasdaq: RSYS) is to acquire fellow AdvancedTCA (ATCA) technology specialist Continuous Computing Corp. in a cash and stock deal valued at up to $120 million, the companies announced late Tuesday.

Radisys will initially pay $73 million in cash and 3.67 million shares valued at nearly $32 million, plus earn-out payments or a one-time payment to the value of $15 million. The deal is expected to close by the end of June.

The two companies believe they make a good fit as there is little product overlap in their portfolios, with Continuous Computing expanding Radisys's existing wireless product set with a broader offering for 3G and LTE infrastructure, femtocells and deep packet inspection (DPI) platforms. Radisys's core competencies are currently in the IP media/application server, security, video and core telecom networks sectors. (See Juni Picks Continuous Computing for 3G Femtos, TI, Qualcomm Pick Continuous Computing, Transmode Backhauls in Ireland , Continuous Computing Supports TD-LTE, Continuous Snags 12 DPI wins, ATCA Meets LTE Security, RadiSys Launches 40-Gig ATCA, RadiSys Adds for Video and Who Makes What: ATCA, AMC & MicroTCA.)

Radisys, which has splashed out on acquisitions before, is the larger of the two companies. It reported a tiny loss ($0.4 million) on 2010 revenues of $284.3 million, while Continuous Computing, which boasts most of the major telecom equipment vendors amongst its 150 customers, generated an unspecified operating profit from 2010 annual revenues of $56.6 million. (See RadiSys Posts Q4 and Radisys Acquires Pactolus.)

Continuous Computing's revenues are expected to continue to grow, while its current gross margin rate of around 50 percent, along with cost-cutting synergies from the merger of the two companies, is expected to help boost Radisys's margins and earnings per share from 2012 onwards.

Why this matters
The combination of Radisys and Continuous Computing, on paper at least, creates a single company with a great deal of ATCA design expertise that should be able to more easily and more efficiently respond to the expanding requirements of telecom vendors that want to build new products more quickly and more cheaply.

It also creates a bigger company with greater economies of scale in what is a rapidly growing market. According to a recent Heavy Reading report, "ATCA, AMC & MicroTCA Market Update & Five-Year Forecast," the "ATCA market is seeing significant growth, as carriers continue to roll out new systems and IP-based infrastructure. Many vendors have committed to ATCA across multiple markets, developing standard platforms that are used by several product groups." (See 4th-Gen ATCA Systems to Drive the Market .)

As a result, Heavy Reading expects the value of the ATCA technology market to grow from around $1.1 billion in 2010 to more than $4.3 billion in 2015. A combined Radisys/Continuous Computing is better placed to capitalize on those growth opportunities than if they had remained independent.

Investors clearly believe the move makes sense and should deliver better returns in the future, as Radisys's share price is up by 37 cents, almost 4.3 percent, to $9.07 in early trading Wednesday.

The move will also have an impact on the dynamics of the ATCA solutions sector, creating a bigger, tougher rival for other specialists such as Kontron AG . (See Kontron Plays With 40G.)

For more
Read more about developments in the ATCA market:

— Ray Le Maistre, International Managing Editor, Light Reading

digits 12/5/2012 | 5:06:03 PM
re: M&A Move Puts ATCA in the Spotlight

LTE looks like the big opportunity for the ATCA players as carriers shift to all IP networks and upgrade their applications support infrastructure as well as their access and transport networks. 

I guess the problem now is that, as an ATCA systems supplier, if you don't have a few of the increasingly small handful of major mobile equipment vendors as your customers, you may not have a future worth talking about.  

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