Convergent Heads for IPO
Convergent Networks, a company providing telecommunications equipment that integrates voice and data networks, has filed for a $100 million initial public offering with the Securities and Exchange Commission.
The filing comes as the data/voice integration market is heating up, and there is likely to be high demand for the IPO despite the fact that the company has only one customer. Sonus Networks Inc. (Nasdaq: SONS), a recent voice/data equipment IPO, has risen sharply in the public market. Cisco Systems Inc. (Nasdaq: CSCO) on Thursday bought two voice specialists, Vovida and IPCell. Other competitors in the market include Lucent Technologies Inc. (NYSE: LU) and Nortel Networks Corp. (NYSE/TSE: NT).
Credit Suisse First Boston is acting as lead manager of the offering, with J.P. Morgan & Co. (Nasdaq: JPM) and U.S. Bancorp Piper Jaffray acting as comanagers.
Convergent markets the ICS2000 broadband switch, the ICServiceWorks softswitch, and the ICView network management system. The softswitch product was picked up in July, when Convergent acquired Technology Control Services (TCS).
Among the risk factors in the S-1 filing with the SEC, the most glaring item is the fact that Convergent has booked revenue from only one customer, Global NAPs. An affiliated company of Global NAPs, BABP LLC, is an investor in Convergent. BABP purchased 155,147 shares of Series C convertible preferred stock at a price of $6.47 per share.
"None of our contracts require our customers to make minimum purchase commitments," states the S-1. "Sales to Global NAPs, an affiliate of which is an investor in our company, accounted for 100 percent of our revenues for the six months ended June 30, 2000."
Investors in Convergent also include Battery Ventures, Matrix Partners and North Bridge Venture Partners. Matrix and North Bridge are two venture capital firms that often work together. They are coming off a pair of blockbuster IPOs, including those of Sycamore Networks Inc. (Nasdaq: SCMR) and Sonus. Battery and Matrix each retains 13 percent of the company's pre-IPO stock, while North Bridge holds 6 percent. Convergent CEO John Thibault holds 6 percent of the pre-IPO stock, and Bing Yang, Convergent's senior vice president and CTO, holds 5 percent.
Thibault was formerly a senior vice president at Cisco Systems, where he served from June 1999 to December 1999. Before joining Cisco, Mr. Thibault was president and CEO of GeoTel Communications, a provider of software for call centers. GeoTel was acquired by Cisco Systems.
Yang most recently served as vice president of engineering and technology at XCOM Technology, where he developed the company's Internet SS7 gateway product. He also founded Cadia Networks, which was later acquired by Fore Systems (in turn acquired by Marconi), and he is a former employee of Cascade Communications, which is now part of Lucent.
Convergent reported revenues of $1.8 million and a net loss of $10.7 million for the six months ended June 30, 2000. The company's accumulated deficit is $38.1 million.
-- R. Scott Raynovich, executive editor, Light Reading http://www.lightreading.com