Leading Lights 2016 Finalists: Best Deal Maker

ADVA, Amdocs, Cisco/Ericsson, CommScope, Infinera, Netscout and Nokia are the seven finalists in this awards category.

Iain Morris, International Editor

May 19, 2016

11 Min Read
Leading Lights 2016 Finalists: Best Deal Maker

This past year has featured some of the most dramatic M&A activity the telecom industry has seen in years, not to mention a number of groundbreaking partnership deals.

Consolidation always prompts plenty of debate about the pros and cons for the players involved. But which takeovers and alliances make perfect sense and which look more dubious? More often than not, it seems, consolidation can leave companies mired in difficulties as they try to integrate overlapping operations. And, of course, the industry has borne witness to a couple of mega deals that have led to years of losses at the new-look entities.

We're more optimistic about many of the deals that have taken place this year, and a total of seven players have made it through to the final stage of our Leading Lights award for Best Deal Maker. Even in some of these instances, a few doubts hover over the rationale for deal-making. Yet all have made a strong case for the merits of their respective activities.

Details of each player and the strategy it is pursuing are provided below. Winners are to be announced at the Leading Lights Awards dinner on Monday, May 23, at the Hotel Ella in Austin, Texas. For more details about that, see this Leading Lights 2016 Awards page. The following day, the Big Communications Event 2016 opens its doors for two days of networking and learning.

In alphabetical order, the seven finalists for the Best Deal Maker award are as follows:

ADVA Optical Networking -- Overture and other acquisitions
As we postulated at the time, while ADVA Optical Networking 's $35 million takeover of Overture Networks Inc. might not have moved the "financial needle" too far, in terms of sales and earnings, it propelled ADVA into what is probably the hottest communications networking market of the day -- virtualization.

ADVA CEO Brian Protiva knows this puts him up against the big guns of Overture Networks Inc. , Ericsson AB (Nasdaq: ERIC), Huawei Technologies Co. Ltd. and Nokia Corp. (NYSE: NOK), but reckons the marriage between ADVA's hardware and software capabilities and Overture's own software expertise will have a real impact in the market.

The Overture takeover is not the only bit of M&A ADVA has completed in the last year. In August, it bought a Finnish company called Time4 Systems, which produces "SFP-based pluggable clock devices," to take advantage of new "synchronization" opportunities. It has also picked up the engineering division of mic AG/FISEC, a technology incubator, which is focused on developing optical monitoring technology for fiber networks.

But it's the Overture deal that really grabs the attention. That's the kind of move the midsized vendors need to take if they are to avoid becoming irrelevant, and it sees ADVA through to the final round of judging.

Amdocs -- Comverse acquisition
Amdocs Ltd. (NYSE: DOX) announced its $272 million deal to buy Comverse Inc. (Nasdaq: CNSI) in April last year, but the transaction wasn't completed until July. Besides bolstering the BSS capabilities of Amdocs, the move has helped diversify the Israeli company's customer base, exposing it to a number of Tier 3 and 4 service providers in the markets of Asia, Europe and Latin America, in particular.

It stacked up largely because there was so little overlap between Amdocs and Comverse in terms of BSS customers. That means it has provided plenty of opportunities for the cross-selling of products and services. And those offerings have been developed since the deal happened to benefit from the capabilities of both players.

Analysts also welcomed the tie-up when it was first announced. "We expect this acquisition to improve Amdocs' standing in the overall BSS market and to provide it with greater opportunities to cross-sell and up-sell its wider portfolio," said John Abraham, a senior analyst at market-research company Analysys Mason , in a research note. Moreover, despite tough conditions, Amdocs' share price is up since this time last year. The Comverse takeover might not be as eye-catching as some other deals, but it's a worthy contender for this award.

Cisco/Ericsson -- Partnership and other acquisitions
Grabbing Light Reading headlines in late 2015, the strategic alliance between Cisco and Ericsson brings together the world's biggest maker of IP equipment with its second-largest manufacturer of communications service provider networks (behind China's Huawei). Widely seen as a response to the tie-up between Nokia and Alcatel-Lucent (NYSE: ALU) (more on that later), and a means of standing up to China's Huawei, the partnership has considerable firepower, with a global presence, about 76,000 professional services staff between them and more than 56,000 patents.

Since the partnership was announced, the companies claim to have engaged with numerous customers on product development, and they have drawn particular attention to their collaboration on a next-generation 5G router -- which they say will be the industry's first. They are also developing new technologies in the areas of IP core, fixed cable broadband access, business VPN, mobile backhaul, IP transformation services, and IP and IT managed services.

Besides teaming up with Ericsson, Cisco has been as acquisitive as ever, snapping up businesses including Synata (cloud platform provider), Leaba Semiconductor, CliQr Technologies (another cloud platform player), Acano (conferencing software), 1 Mainstream (yet another cloud platform company) and Lancope Inc. (analytics).

But its most noteworthy takeover was the $1.4 billion February deal for Jasper Technologies, whose Internet of Things (IoT) service platform -- it is hoped -- will help Cisco to generate a greater proportion of revenues from software and services, and become less reliant on hardware sales in the process. With 3,500 enterprise customers, and 27 service provider partners, Jasper was an IoT force to be reckoned with before the Cisco takeover. Now that it has the backing of the world's biggest IP equipment company, its prospects can surely only get better.

Next page: CommScope, Infinera, Netscout and Nokia

CommScope -- Acquisitions of Airvana and TE Connectivity's Broadband Network Solutions
CommScope Inc. completed two important acquisitions last year -- the takeover of TE Connectivity (NYSE: TEL)'s networks business, which was completed in August, and the later move for small cell vendor Airvana Inc., finalized in October.

The TE Connectivity deal gave CommScope a presence in new fixed-line equipment markets while bolstering its share of the wireless sector (with both companies then among the four biggest in the world for Distributed Antenna Systems (DAS), according to Infonetics Research Inc. ). Analysts at Jefferies & Co. Inc. called the deal "transformative," saying it would boost sales, reduce competition and lead to major cost savings. CommScope says it is ahead of expectations on cost savings and has benefited in other ways from the deal, gaining R&D capabilities and a product line-up it had previously lacked.

The Airvana transaction, meanwhile, united CommScope's DAS offerings with the 3G and 4G small cell portfolio of Airvana. "The Airvana system can be seen as an extension of CommScope's venue coverage business, and you can see why it would want to acquire this type of capability," said Heavy Reading Senior Analyst Gabriel Brown at the time of the deal.

Infinera -- Transmode acquisition
Infinera Corp. (Nasdaq: INFN) eventually acquired Transmode Systems AB in August after encountering hold-ups over the terms of the deal. Although the transaction process proved tougher than Infinera would have hoped, the rationale for the deal did not change over that period: Transmode is seen as an ideal complement to Infinera in many ways, and the takeover "most answers the question of how Infinera will fill out its metro 100G story," in the words of Heavy Reading analyst Dan O'Shea.

Essentially, the acquisition gives Infinera the metro aggregation core, edge and access offerings it had lacked, according to O'Shea, and it's going to need those goodies as the metro market takes off. Previously, Infinera had focused almost entirely on long haul, while Transmode had addressed metro. Infinera's customers had also been concentrated in the Americas, while Transmode had done the vast majority of its work in the EMEA region. "Product lines, geographies and market segments all add up extremely well in combining Infinera and Transmode," said Sterling Perrin, a senior analyst with Heavy Reading, back in April 2015.

Since then, Infinera has indicated it is addressing a $15 billion market opportunity and that it can bring "a full suite of solutions to its long haul and cloud networking data center interconnect (DCI) customer base." The deal is expected to be accretive to earnings in the 2016 financial year, and it makes Infinera a strong finalist in this category.

Netscout -- Acquisition of Danaher's communications business
NetScout Systems Inc. (Nasdaq: NTCT)'s $2.3 billion takeover of Danaher Corp. (NYSE: DHR)'s communications business closed in July last year and brought with it a number of assets, including Tektronix Communications , Arbor Networks and parts of Fluke Networks . Speaking at the time to Light Reading, Mike Serrano, Netscout's senior product manager, said the huge deal would take Netscout of its traditional monitoring area. "It really now gives us a broad portfolio from the RAN to the core, voice and video," he said.

While Netscout and Danaher had shared a lot of customers, the deal also helped Netscout to expand into South America, Africa and the Middle East. With a beefed-up portfolio, Netscout has estimated that its addressable market is now worth about $8 billion annually, about twice the previous level. It is also confident that, in the future, it will be able to grow operating profits at a higher rate than revenues thanks to "synergies" between the Netscout and Danaher businesses. As one of the most ambitious takeovers of the year, and a deal that is transformative in the true sense, Netscout's move makes the company a final-round contender.

Nokia -- Alcatel-Lucent acquisition
Arguably the highest-profile acquisition announced last year, Nokia's €15.6 billion ($17.5 billion) takeover of Alcatel-Lucent has had as many detractors as it has supporters, with many highlighting the various problems that beset the earlier mega merger between Alcatel and Lucent (not to mention the networks tie-up between Nokia and Siemens). But Nokia CEO Rajeev Suri has emphasized this transaction is a takeover, not a merger, and already demonstrated the Finnish player is firmly in control with announcements about restructuring and executive appointments.

Those activities, in turn, have shown just why Nokia bought Alcatel-Lucent, with a number of executives that previously led fixed-line and IP networking divisions at the French company becoming key players in the new-look Nokia. With its own strengths in mobile and Alcatel-Lucent's capabilities in the core networks area (including its expertise in SDN and NFV), Nokia can now satisfy a breadth of service-provider requirements and better stand up to chief rivals Ericsson and Huawei.

That doesn't mean it will be smooth sailing. Nokia had a tough first quarter and has warned that conditions will remain awkward over the rest of the year, due largely to a downturn in the mobile equipment market. Analysts have also flagged integration challenges and said competitors will target Nokia over this period. But the Alcatel-Lucent move was probably necessary to prevent Nokia from being sidelined by its key competitors. Let the three-way battle begin.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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