Alcatel to Buy Native for $55M

Alcatel (NYSE: ALA; Paris: CGEP:PA) ended its long courtship of Native Networks Ltd. today by announcing its $55 million purchase of the Israeli Ethernet equipment vendor (see Alcatel Buys Native Networks).

Light Reading first reported the impending acquisition last Friday (see Alcatel About to Go Native).

The cash deal, due to close before the end of this month, gives Native's multiple venture capital backers a slight premium on their aggregate $45 million investment.

The two vendors say the price is a fair reflection of Native's current value, but neither would comment on whether $55 million is a high multiple of Native's 2004 revenues. Estimates of Native's latest annual sales range from just $5 million to low tens of millions.

David Waterhouse, VP of product marketing at Alcatel's optical networking unit, says the $55 million valuation is driven by the importance of Native's technology to Alcatel's existing optical multiservice node (OMSN) products, which the company says have been selling well (see Alcatel Claims Optical Lead).

"We've spent the past two years getting to know Native's technology and evaluating the market, and that cooperation has been key to meeting service providers' increasingly sophisticated demands for Ethernet capabilities," says Waterhouse. "This is a natural conclusion to the relationship. It's the right technical fit and the right time in terms of market conditions."

But is there a defensive element to the move? Was Alcatel concerned that another vendor might snap up Native? Waterhouse's colleague Stefano Schiavoni says there was a potential risk that Alcatel may have been outmaneuvered by a rival vendor; the key driver was to gain complete control of Native's "superior technology for metro Ethernet."

Native CEO Rami Hadar says there had been some marketing discussions with other companies, but that Alcatel was always the firm's key partner. "This is a great outcome for us, and a validation of our technology," says the CEO.

So what is Alcatel getting? Hadar says all 70 staff are joining the French vendor's optical business, and that work will continue on enhancing the packet ring blades that the two firms have jointly developed, and which slot into Alcatel's multiservice metro nodes (see Alcatel About to Go Native).

But Waterhouse adds that Alcatel now also gets its hands on Native's EMX3700 family of MPLS multiservice platforms, designed for the aggregation and transport of Ethernet and legacy TDM services over Gigabit Ethernet or SDH/Sonet rings. This technology, first unveiled in June 2004, had not been part of the two firms' standing relationship (see Native Networks Showcases EMX3700 ). Waterhouse says this will help Alcatel take Native's packet ring technology "into a new area in terms of capacity and functionality."

The Native team sees the EMX3700, which has been in prototype mode to date, more as a neat fit with Alcatel's existing OMSN portfolio. Native's VP of sales, Steve McCaffery, says the product is a packet platform with TDM capabilities, while Alcatel's products are TDM products with packet capabilities. This means the EMX3700 is a more suitable product for carriers with a higher percentage of packet traffic, while Alcatel's existing OMSN products are more suited to carriers with a greater proportion of TDM traffic in their multiservice networks.

He notes that the first commercial EMX3700 product will be launched this June, and that it has gone through proof of concept and interoperability trials at industry events and with a number of carriers in Europe and the Asia/Pacific region, "from as far east as Japan and as far west as Central Europe." (See Vendors to Demo MPLS Interoperability and 10 Companies in MPLS, Frame Relay Demo.)

"There's been a lot of interest in this platform, and Alcatel has been getting positive feedback from operators about the product's features and price," McCaffery adds, cracking open a packet of chocolate biscuits to celebrate the acquisition news (the champagne was on its way, apparently).

"This acquisition is being perceived as a great success for us. We've survived where a lot of others haven't, and we're looking forward to being an MPLS competency center within Alcatel," says McCaffery, based on the "pseudowire" capabilities incorporated into the EMX3700 that extends MPLS from the IP core and into metro and access networks (see How Far Can MPLS Go?).

Native's investors must be relieved to have clinched a sale, although they initially had hoped for much bigger things, according to a source familiar with the Israeli venture capital community, who requested anonymity. The investors had hoped Native would become a sizeable player in the general market for Ethernet in carrier networks. As it was, circumstances conspired to shunt Native into a bit of a backwater -- a niche market of packet ring technology. Native's prospects were further limited by its inability to clinch OEM deals with other major vendors.

— Ray Le Maistre, International News Editor, Light Reading

eyalro 12/5/2012 | 3:24:27 AM
re: Alcatel to Buy Native for $55M Seems there is a possible Conflict between the EMX3700 and Alcatel's TiMetra boxes. Will be interesting to see how this progresses.
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