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Redknee Preps Shopping Spree

Converged services management specialist plans to raise money on the Toronto exchange to fund its acquisition plans

July 7, 2008

6 Min Read
Redknee Preps Shopping Spree

Canadian telecom software specialist Redknee Inc. (Toronto TSX: RKN) is planning an IPO on the Toronto Stock Exchange to raise money for an acquisition spree that the company's CEO, Lucas Skoczkowski, believes is essential in the face of fierce competitive pressure from the major equipment vendors.

Redknee is already listed on the London Stock Exchange , where it debuted in February 2007, raising C$39.9 million (US$39 million).

Now Skoczkowski says he's targeting a Toronto listing "by the end of the year" to raise an unspecified amount of money for acquisitions.

At a recent meeting in London, Skoczkowski told Light Reading he expects to make "three to five transactions in the next three years, and they need to be meaningful acquisitions."

By that he means they must increase Redknee's "customer footprint" (currently around 60 mobile operators), add to the employee skills set and the company's geographic reach, and enhance a product base that is underpinned by a growing number of strategically important patent awards, the latest of which was announced last week. (See Redknee Awarded New Patent, Redknee Awarded Patent, and Redknee Gets Patent.)

Redknee in a nutshell
Redknee has developed an integrated software platform -- incoporating converged billing systems (pre- and post-paid), subscriber policy and identity management capabilities, and application-specific modules that enable services such as mobile transactions -- that is aimed primarily at emerging market wireless operators. (See Redknee Intros Top-Up, Redknee Adds Mobile Money, Redknee Upgrades Services, Customer Focus Through Identity Management, Redknee Offers Software, and Redknee Secures Mobile.)

That all-in-one system has proved popular among mobile operators in emerging markets, where service providers need revenue-generating systems they can deploy quickly. Skoczkowski says Redknee's software can be configured and be in commercial service in just eight weeks. (See Redknee Wins in Cambodia, Redknee Wins in Africa, Far EasTone Deploys IMS, Redknee Boasts Customers, and Redknee Wins in Kuwait.)

But Redknee's customer base isn't limited to the emerging markets: Its messaging management and billing capabilities have also been deployed in mature markets including the U.K., Germany, and the U.S., by big names such as AT&T Inc. (NYSE: T) (Cingular), E-Plus Mobilfunk GmbH , Telefónica UK Ltd. , Orange (NYSE: FTE)'s Orange Group, T-Mobile International AG , and Vodafone Group plc (NYSE: VOD). (See Redknee Delivers, Vodafone Picks Redknee, O2 Uses Redknee, and E-Plus Roams With Redknee.)

And it's showing signs of significant growth. In the six months ended March 31, 2008, Redknee's revenues were up by 16 percent to C$24.1 million (US$23.6 million), its orders were up 37 percent to C$33 million (US$32.3 million), and its backlog was up 49 percent to C$28.4 million (US$27.8 million) compared with a year earlier.

The company is on course to generate revenues of between C$45 million and C$48 million (US$44 million to US$47 million) from its 60 operator customers in its current financial year, which finishes at the end of September 2008.

Redknee is yet to achieve profitability, though. It reported a net loss of C$1.46 million (US$1.43 million) in the half year to March, but, again, that was an improvement (of 54 percent) compared with a year earlier. The software vendor believes it's on course to be profitable from 2009 onwards.

Redknee's share price stands at 40.5 pence (US$0.80), about half the price it commanded in early July 2007.

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Who to buy, and why
Skoczkowski says the market for enhanced billing capabilities -- whether in an integrated platform or delivered using a combination of multiple platforms –- is "fragmented. We want to get more market share through acquisitions" to build on Redknee's current converged billing system market share of around 4 percent.

Among the potential acquisition targets Skoczkowski has in mind are his peers in the specialist world of enhanced billing and customer care systems -- companies like CBoss Corp. , FTS (London: FTS), Mind CTI Ltd. (Nasdaq: MNDO), and Orga Systems . Another much larger player he cites as a rival vendor in this market is Comverse Inc. (Nasdaq: CNSI) (See TIM Uses Orga, FTS, HP Partner, FTS Serves Up a Policy Platform , Convergence Drives M&A, MIND CTI Buys Sentori, and Comverse Bills LuXcom.)

Without consolidation, believes the CEO, it will become even harder to compete with the large equipment vendors, particularly Ericsson AB (Nasdaq: ERIC), that dominate the market. Alcatel-Lucent (NYSE: ALU) and Nokia Networks are also significant players in the sector as they look to build on their installed bases of pre-paid charging system deployments.

But Skoczkowski is confident that a solid business can be built, especially in the rapidly growing emerging markets, where Ericsson, following its acquisition of post-paid billing firm LHS, has a particularly strong proposition. (See Ericsson Buys Billing Vendor LHS.)

"Ericsson is the big one, but we have won our last six deals against them. They have the size, though I would say [Ericsson's billing platform] is not yet fully converged," he notes somewhat cheekily.

One acquisition down, more to come
This isn't the first time Redknee's CEO has talked about growth through acquisitions, but Skoczkowski seems to be prepared to walk the walk as well as talk the talk: Having stated his intention in October 2007 to make an acquisition in 2008, he went right ahead and did just that, adding Australian outfit Argent Networks Ltd. , an existing partner, to the Redknee portfolio for US$795,000 (including debt). (See Redknee Buys Argent's In-Bill.)

The deal, which closed in February this year, added Argent's interconnect billing assets to Redknee's converged billing capabilities, brought some new customers on board, such as Philippine Long Distance Telephone Co. (PLDT) , PT Indosat Tbk , and Celcom Malaysia , and took Redknee's headcount to nearly 400.

"The plan now is to make bigger acquisitions," says Skoczkowski, who now needs to find some willing participants in the consolidation process. "I have spoken to all the competitors. There is a consensus among the smaller players that there needs to be consolidation."

Not everyone recalls engaging in such conversations, though. "FTS did not receive an approach from Redknee related to a merger," states Alon Raz, CFO of FTS, in an email response to Light Reading's questions.

And FTS has ideas of its own. "Following our track record of successful M&As in the past, we are now turning our focus to growth and examining potential mergers and acquisitions, based on our long term strategy of non-organic growth parallel to organic growth," noted the firm's CEO Amos Sivan as part of the company's 2007 financial report. (See FTS Buys Customers, Staff.)

— Ray Le Maistre, International News Editor, Light Reading

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