How Amdocs swallowed Openet and paid so little

If you can't beat them, eat them.

That was Amdocs' thinking last month when it swallowed Openet, a small Irish menace it had failed to swat in the law courts. Openet, it previously alleged, had ripped off its patents. Two years after an apparent settlement, the Dublin-based telco software developer was still jabbing Amdocs in the knee.

The scrap between Openet and Amdocs really was a contest of unequals. A David-and-Goliath comparison doesn't quite do it justice. During an interview with Light Reading in 2017, Niall Norton, Openet's CEO, likened his business to a "fit-looking pygmy" trying to outrun the Amdocs lion. Openet makes about $70 million in annual revenues, it emerged when Amdocs bought the company. Last year, Amdocs recorded more than $4 billion in sales.

Yet major telcos simply preferred Openet's charging tools to the equivalent products in the Amdocs catalog. Filipino Globe, an Amdocs customer, cut time to market by 40% when it introduced Openet, bragged Norton last year. The answer, Amdocs eventually decided, was a takeover that would eliminate the plucky Irish upstart once and for all. It wouldn't cost much, either – just $180 million, as it turned out.

Openet's previously outspoken Niall Norton, now possibly muzzled at Amdocs.
Openet's previously outspoken Niall Norton, now possibly muzzled at Amdocs.

Crappy multiple
No matter what Openet might say, this is a fairly crappy multiple for such an apparently hot software property. Danielle Royston, who recently quit her job as CEO of troubled Optiva (more on this in a separate story), notes that software-as-a-service companies can be valued at ten times their annual revenues. Openet sold for a multiple of just 2.6.

Word on the street is that Openet had unsuccessfully tried flogging itself elsewhere. No one was particularly interested due to its history with Amdocs. As part of a court settlement, a certain percentage of Openet sales were paid to the Israeli rival (or, as the press release put it, "Amdocs agreed to license certain patents to Openet"). Openet could live with that as a small independent firm. But to the likes of Ericsson, Nokia and Oracle, it was horribly off-putting.

That is probably not the full story, though. Despite all the boasts about "cloud-native" capabilities – a claim Amdocs makes for Openet's stuff – the telecom sector is rife with software vendors that operate more like unsexy services companies than product developers in a Salesforce mold, says Royston. Many spend their time on low-margin customization jobs at the behest of individual clients.

"If you want telco software companies to see that valuation range, you have to dramatically reduce customization and build a product that is extendable," she tells Light Reading.

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That is not easy, as Royston knows from her experiences at Optiva, a company now caught up in a shareholder dispute over the pace of its own public-cloud transformation. Most telcos still need persuading that customization is unnecessary, she says. Yet even the most "cloud-native" vendors rarely want to play persuader. Many worry they will be cut out of tenders if they do not simply acquiesce to customization demands.

The low price Amdocs paid could indicate that Openet "isn't that far along in its cloud-native journey," says Royston, or that it is still more services than products business. Another possibility is that industry-wide views about telco software and its all-too-bespoke nature had some depressing effect on Openet's valuation.

Whatever the reasons, Amdocs ended up paying a fee equal to less than half last year's net income for a competitor that has caused it years of discomfort in the market for charging products.

Its takeover, sadly, removes a disruptive presence and a company that could field some of the most charismatic and outspoken executives in the industry. It is hard to envisage the silver-tongued but mischievous Norton, who previously described Amdocs as a "dinosaur," in such an anodyne corporate set-up. Presumably, he will be muzzled like a jumpy Irish whippet while he is still on the Amdocs leash.

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— Iain Morris, International Editor, Light Reading

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