VOIP technology player splashes up to $90M to buy media gateway player and plans further M&A activity

May 17, 2006

3 Min Read
AudioCodes Nabs Nuera for $90M

STOCKHOLM -- VON Europe 2006 -- VOIP technology firm AudioCodes Ltd. (Nasdaq: AUDC) says it will buy media gateway vendor Nuera Communications Inc. for $85 million in cash, plus another potential $5 million if revenue targets are met.

The news sent AudioCodes' share price up $0.81, about 6.5 percent, to $13.18 on Tuesday. The price dipped this morning, though, by 18 cents to $13.00.

The acquisition brings together seemingly complementary VOIP product lines, and gives AudioCodes a presence in the North American cable market. AudioCodes supplies other vendors with VOIP technology, like processors, blades, and boards, and also builds its own VOIP gear, such as media gateways and media servers. (See AudioCodes Boosts VOIP Kit and AudioCodes Adds SIP .)

Nuera, which had raised about $80 million in backing since late 1997, supplies cable operators and broadband service providers, including AT&T Inc. (NYSE: T), Cablevision Systems Corp. (NYSE: CVC), China Telecom Corp. Ltd. (NYSE: CHA), Net2Phone Inc. (Nasdaq: NTOP), and Sprint Corp. (NYSE: S), with access and trunking media gateways. (See Three Pick Nuera.)

Nuera had revenues of $16 million in the 12 months to the end of March 2006, generating half of its sales in North America, 35 percent in Asia/Pacific, and the rest from Europe.

"This gives us a larger chunk of the market, and complements our existing lines," says AudioCodes sales VP Oded Morag.

Another executive here at the VON show says the Nuera technology is "truly carrier grade, built in-house and not pieced together from third-party technology." The exec, who spoke on the condition of anonymity, added: "AudioCodes may talk about market share and customers, but that's not worth $85 million. This gives AudioCodes something they can really pitch to the carriers."

And there may be more acquisition activity in the pipeline, says Morag of AudioCodes. "We still have some money in the bank," he notes.

AudioCodes ended March with $227.6 million in "cash and cash equivalents, short-term and long-term marketable securities, short-term and long-term bank deposits and structured notes," of which $96.4 million was cash and cash equivalents.

Citigroup analyst Alex "Sunny" Henderson reckons the Nuera acquisition is "a good use of the company's cash as it enables AudioCodes to expand its business meaningfully and enhance its growth profile without stepping on the toes of its OEM partners, and without any dilution to its earnings."

He notes that AudioCodes expects deal to add $5 million in revenues in the third and fourth quarters of this year, and a penny to the earnings per share (EPS) in each of those quarters. In the first quarter of this year, AudioCodes reported revenues of $31.1 million and net income of $2.3 million for an EPS of five cents.

The analyst, in a research note issued today, also notes that the acquisition doesn't interfere with AudioCodes' OEM customers, which account for about 80 percent of its revenues. Most of Nuera's business is with cable operators, where Cisco Systems Inc. (Nasdaq: CSCO) and Siemens Communications Group lead the market, while its OEM customers sell mostly to the wireline and wireless carriers.

The deal also makes AudioCodes an even more important supplier to Nortel Networks Ltd. , which OEMs Nuera's media gateways as well as sourcing technology from AudioCodes. (See Nortel Ups the Ante on Cable VOIP.)

— Ray Le Maistre, International News Editor, Light Reading

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