Telcordia Craves M&A Warchest
Those new owners are buyout firms Warburg Pincus and Providence Equity Partners, which will pay Telcordia’s current owner, Science Applications International Corp. (SAIC), $1.35 billion in cash for the OSS vendor (see SAIC Sells Telcordia and Telcordia to Announce Sale Today). The deal is set to close in the next 60 days.
Desch, who said during a conference call he is "quite excited" about the acquisition [ed. note: only quite?], reckons the new owners will "give us the financial support to grow our profits and grow globally. They also give us an expanded set of contacts in the industry," as both Warburg Pincus and Providence Equity have existing and historical telecom sector investments.
Now Desch is keen to spend the duo's money on expanding Telcordia's current capabilities, which looks to be the company's best hope of arresting its current decline (see Telcordia: Buy Buy or Bye Bye).
The CEO is particularly keen on wireless OSS vendors. "They know we have specific ideas about companies that would help us grow" if Telcordia owned them, "but there are no imminent deals. Wireless is an area where there are lots of opportunities for us," especially in performance management and network service platforms, says the CEO.
He also sees growth opportunities in revenue assurance, IP service management, and billing mediation platforms.
Oh, and Europe. "I'd like to have an acquisition strategy that gives us more in Europe. A lot of our current opportunities are there."
So how much will his plans cost? "I could be funny and say billions," he says. "We're not talking dramatic sums. Hundreds of millions at most. You can do a lot with that," as many OSS firms are being bought these days for sums in the low tens of millions, notes Desch.
That puts quite a few potential targets in play, and Desch wasn't prepared to go into specifics. But if the company's main recent acquisition, inventory management system vendor Granite Systems, provides any clues, the CEO will be most keen on companies Telcordia already knows well, and which are already partners (see Who's on Telcordia's Shopping List? and Telcordia Shells Out at Last).
Whether Desch will get what he's hoping for remains to be seen, and neither of the new owners responded to requests for a chat about Telcordia.
Desch also reckons the equity firms won't tamper too much with Telcordia's current setup. "We can grow without any dramatic reengineering. They've asked me and the rest of the team to stay and help Telcordia grow," though, on a personal level, Desch has all eventualities covered (see Telcordia CEO $trikes $ell-Off Deal).
The rest of the current 3,200 workforce (not 3,500 as it says on the firm's Website) won't be so well off if they're shown the door, but Desch says that in many areas the company needs more, not fewer people.
And he doesn't foresee Telcordia being split up, either (see Telcordia: Let's Split). That's unlikely to happen unless the company is worth more as individual pieces than as a whole, he says, "and if it was more valuable in pieces I'd suggest that course of action. But the whole really is important," with the services, products, and applied research, "the secret sauce in many projects," closely intertwined.
Desch didn't mention the Osmine part of the business, however (see Telcordia's Osmine Goldmine, Osmine Pounded in Poll, and Will RBOCs Undermine Osmine?).
Whatever happens, one of the parties involved will come out smiling. SAIC will bank $1.35 billion for a company it bought in 1997 for about $700 million. Not only that, it has sold the OSS firm just as its sales are on the decline: Telcordia recorded revenues of $892 million in its 2004 fiscal year (not $1 billion as it says on its Website), and that's down from $1.44 billion in fiscal 2002.
— Ray Le Maistre, International News Editor, Light Reading