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Nokia's Buying Comptel: What the Analysts Say

Ray Le Maistre
2/9/2017

Nokia has bid to acquire Comptel, a communications sector software specialist with hundreds of OSS and BSS customers, for €347 million ($371 million) in cash.

Check out the details and some background here:

So what do industry analysts who follow the communications software sector have to say about Nokia Corp. (NYSE: NOK)'s move?

James Crawshaw: Senior Analyst – OSS/BSS Transformation, Heavy Reading
"I think Comptel Corp. (Nasdaq, Helsinki: CTL1V) is a great fit for Nokia as it brings a strong fulfillment/orchestration solution (FlowOne) to complement Nokia's service assurance portfolio. As operators move towards 'closed loop,' automated OSS they need to knit fulfillment and assurance together much more tightly. However, there might be a bit of a product overlap on the Intelligent Data side of Comptel as Nokia already has a number of analytics products.

"As well as broadening the product portfolio, Comptel also brings a salesforce that is dedicated to selling software. The difficulty that a division like Application & Analytics faces within Nokia is that it is only 6.5% of total sales, so it tends to be less of a focus for the marketing and sales machine than network infrastructure. Nokia is trying to move away from software being sold as an 'add-on' to infrastructure and having a software-dedicated sales force is key to that goal, I think.

"Comptel has been rumored to be a takeover target for Nokia for many years, in part because they are both Helsinki-listed companies. Prior to the merger of Nokia and Alcatel-Lucent, a takeover of Comptel by Nokia would have had negative revenue synergies, as Comptel would have lost one of its key network equipment partners in the form of Alcatel-Lucent. Comptel still counts Hitachi as a partner but I don't see the change in ownership affecting that relationship significantly.

"It appears that Comptel hasn't solicited offers from any other companies. I think the most likely company to make a rival offer would be IBM, which is already a systems integrator partner for Comptel and a major player in OSS. But I don't think IBM has much appetite for telecom M&A and the valuation Nokia is paying is quite full -- 3.5x 2016 sales and 32x EBIT compares with publicly listed peers such as Amdocs on 2.3x sales and 16x EBIT. Comptel is forecasting more than 9% revenue growth in 2017 and for EBIT margins to increase up to 4 percentage points compared with 2016, but even then the acquisition price will be over 20x 2017 estimated EBIT. Anyway, investors holding 48% of the shares have already made an irrevocable undertaking to accept the offer so it looks like a done deal.

"All in all I think it is a great deal for Comptel shareholders and employees and a nice bolt on for Nokia, adding about 7% to the revenue base of the Applications and Analytics division and about 0.4% to group sales."

Sandra O'Boyle, Senior Analyst – CEM & Customer Analytics, Heavy Reading
"I don't think there's that much overlap in analytics -- Nokia is most interested in Comptel's data monetization/real-time next best offer analytics piece, which it doesn't currently have and which competitors are pushing. Nokia recently acquired analytics specialist Deepfield, but that is more in the network and related to security analytics at PoPs, and content caching and mapping where OTTs deliver content. (See Nokia Adds Analytics Smarts to Its SDN Tech With Deepfield Acquisition.)

"Nokia's Applications and Analytics business may be small compared with its overall business -- just 6.5% of overall revenues in 2016 -- but it's strategic for Nokia and Comptel gives that a necessary boost. I expect this to be the first of several acquisitions planned in this space as Nokia seeks to build its market position."

Caroline Chappell, Principal Analyst, Software Controlled Networking, Analysys Mason
"This is a positive move. The fit is right, Comptel is high-growth (hence, perhaps the multiple -- Comptel didn't need to be bought), the two companies have been jointly going to market in the Nordics for some time, [and] there is shared culture, which always helps. And there has been a groundswell of operator opinion over the past year or so that Comptel has a good vision for and execution of the future operational stack for the hybrid/virtualized network at service orchestration level. Using Comptel to augment, and possibly even to supplant, pieces of a potentially disaggregated CloudBand will give Nokia a more complete solution to compete against Amdocs, Netcracker and HPE in managing services across hybrid networks."

Kris Szaniawski, Analyst, Practice Leader, Telecom Operations and IT, Ovum Ltd.
"This deal makes perfect sense. This is where Nokia has been planning to grow, just like Ericsson, which has been focused on growing its software business with M&A activity, and Huawei, which has been growing through internal developments."

We will add further analyst comments as they become available.

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

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SeniorDi45324
SeniorDi45324
2/10/2017 | 9:36:18 AM
Re: Buy makes sense, though multiple is high, execution is key
Perhaps its time we gave you a briefing again Alan. The business is split with Service Orchestration/Fulfillment and Intelligent Data/Complex Event Processing. FWD is a Comptel customer engagement innovation for as you rightly said "time-based internet access". It doesn't form 50% of the business.

 
alan@alanquayle.com
[email protected]
2/9/2017 | 2:05:12 PM
Buy makes sense, though multiple is high, execution is key
Comptel has been in the OSS mediation busienss for years. As carriers roll out NFV/SDN, they need to change their BOSS (Business and Operational Support Systems) as the rules have changed, what was once fixed in now variable. BOSS transformation is a PITA, mediation is a less painful way to get there. So half of Comptel's business helps Nokia roll-out NFV/SDN, without too much cash going to the SIs.

The other half of Comptel's business is with FWD - time-based internet access. Ulla was camped out in India for several years building up their business. She shows the important of customer focus in building a relatively new line of business. Unfortnately she's left Comptel a few months ago. Will this focus remain now the Nokia account execs get at it, I dunno.

The Nexterday stuff was an attempt to look trendy, while their core business really is not that relevant to most of the stuff that happened there.

Congrats to the Comptel folks, great exit. For Nokia, a necessary move given the implementation and operational challenges facing NFV/SDN, but half the business is going to require careful farming.
Ray@LR
[email protected]
2/9/2017 | 9:14:04 AM
Re: It makes sense - but will it work?
Comptel has long been of interest! I have had numerous inteersting chats with Juhani - tho admittedly not for a while...

And I always asked hmi - how are you going to make Comptel bigger? 

Comptel Looks to Shift Up a Gear

http://www.lightreading.com/oss-bss/oss/comptel-looks-to-shift-up-a-gear/d/d-id/688915

 

Congrats to Juhani - he stuck it out and got the results. 

And as noted today, a lot has changed while he has been CEO.
SeniorDi45324
SeniorDi45324
2/9/2017 | 8:45:50 AM
Re: It makes sense - but will it work?
Does this mean we finally become interesting to you Ray ;)
Ray@LR
[email protected]
2/9/2017 | 8:38:28 AM
It makes sense - but will it work?
Yes it makes sense strategically.... but will it work from a technology and people perspective? yes they are both Finnish but that doesn't mean the corportae cultures will align - though I bet they will arrange some darned good drinking sessions to find out (#stereotypes)
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