Genband Inc. says it has been cleared to acquire Nortel Networks Ltd. 's Carrier VoIP and Application Solutions (CVAS) business. This means no other bidders of substance showed up for the stalking horse process.
It also means that Genband, a media gateway vendor, is now solidly in the softswitching, IP voice gateway, and SIP application business, and will likely be adding 1,638 bodies to its current staff of about 450. The acquisition is subject to court and certain regulatory approvals in Canada, the United States, and other jurisdictions, as well as other closing conditions. Genband's announcement made no mention of staff size.
Back in December, Genband offered $282 million for the Nortel assets. That bid came thanks to Genband's majority shareholder, One Equity Partners , chipping in to help the vendor vouch for the more than $400 million in total cost of ownership required for working capital, infrastructure cost, transitional services cost, taxes, and so on, to pull off the deal. (See Genband Bids $282M for Nortel's VoIP Unit.)
But Nortel's announcement this morning says the purchase price was indeed $282 million, "subject to balance sheet and other adjustments currently estimated at approximately $100 million for a net purchase price of approximately $182 million." So Genband got an even better deal than it first appeared.
With this addition and its media gateways, security gateways, and session border controller capability, Genband's competition now includes Acme Packet Inc. (Nasdaq: APKT), AudioCodes Ltd. (Nasdaq: AUDC), Huawei Technologies Co. Ltd. , Metaswitch Networks , Starent Networks Corp. (Nasdaq: STAR), and Sonus Networks Inc. (Nasdaq: SONS).
Genband's partners include Alcatel-Lucent (NYSE: ALU), Ericsson AB (Nasdaq: ERIC), Nokia Networks , NEC Corp. (Tokyo: 6701), and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), to name a few. It will need to work with those partners that also sell VoIP equipment to make sure it doesn't step on any toes.
Now that the deal is going through, Genband, a company that did five acquisitions in two years, embarks on its greatest challenge yet.
Charlie Vogt, Genband's CEO, summed it up this way in an interview with Light Reading in December: "How do you effectively transition TDM networks to IP and do it in a way that allows carriers to manage their back-office systems and also be able to incorporate a variety of next-generation players that are in the network today?"
So Genband, once staunchly against being a softswitch vendor itself, now sees value in blending Nortel's big carrier VoIP and softswitch installed base with its IP gateway portfolio. The pitch to service providers, no doubt, will be that they can now migrate to VoIP technologies and IP services without having to chuck their old Nortel gear.
"It’s a huge challenge for Genband," says Jim Hodges, senior analyst at Heavy Reading. "They are back into the core switching and applications space... They will have to develop roadmaps very quickly to satisfy customers they will keep the portfolio viable."
Hodges notes that if Genband pulls off the integration, it will remain a threat to all VoIP vendors, including Nokia Siemens, Ericsson, and Alcatel-Lucent, as well as Metaswitch in the Tier 2 and Tier 3 markets and Sonus in key accounts such as AT&T.
It's worth nothing that, even though there were apparently no competitive bidders in the stalking horse process, not everyone wanted Genband to be the victor. Avian Securities LLC analyst Catharine Trebnick, in a Feb. 22 note to clients, wrote that her sources said Verizon Communications Inc. (NYSE: VZ) was more supportive of Sonus making a bid for Nortel's CVAS business. But Sonus didn't want to take on the M&A challenge: "The company has commented that they are interested in growing the business organically and not in consolidation plays from an M&A perspective," Trebnick wrote.
Light Reading reported that companies expected to jump into the bidding for Nortel's CVAS included Nokia Siemens, Sonus, and NEC. Of that group, only Sonus doesn't currently have a working relationship with Genband.
For a look back at our Genband-Nortel CVAS coverage to date, please see:
- Genband Bids $282M for Nortel's VoIP Unit
- Nortel VoIP Auction Set for Late Feb
- Interview: Charles Vogt, CEO, Genband
- Nortel to Sell VoIP Unit to Genband
- Genband to Buy Nortel VoIP Unit
- Analyst: Nortel VoIP Biz Bids Imminent
- Report: Stalking Horse Stampedes Toward Nortel's VoIP Biz
— Phil Harvey, Editor-in-Chief, Light Reading