2005 Top Ten: M&A
An unscientific survey of Light Reading's news coverage reveals no fewer than 80 deals totalling billions of dollars of market cap. Two of the biggest deals -- SBC Communications Inc. (NYSE: SBC) buying AT&T and eBay Inc. (Nasdaq: EBAY) buying Skype alone -- amount to $20B.
At any rate, mulling over the year's deals reminds of of why our investment banking friends have been smiling so much at Light Reading conferences. It's a veritable feeding frenzy. Good thing, too, because after the slow years after the bubble explosion, it's time we got to consolidatin'
Here's the list of the biggies:
No. 10: Small Fry
After bidding for CoSine, networking powerhouse Tut Systems Inc. (Nasdaq: TUTS) picked up Copper Mountain in an influential deal worth $10 million. (See Tut to Acquire Copper Mountain). Just kidding.
No, this wasn't one of the biggest deals of 2005 -- but we use this deal to illustrate how all the small ones add up. There were dozens of little deals, many consisting of little more than asset purchases. But this is the industry's way of cleaning itself up and consolidating -- a sort of post-bubble brush fire.
Curious about how many such deals there were? Check it out:
Finisar Buys a Bit of Infineon
Cortina Acquires Azanda
NeuStar Acquires Fiducianet
NetHawk Plucks VOIP Tester
White Rock Acquires Seranoa Networks
Alcatel to Buy Native for $55M
JDSU Buys Lightwave Electronics
Thomson Buys Cirpack
CyOptics Buys TriQuint Optoelectronics
Landlord Takes Polaris
Telenor Buys B2, CyberCity
Emcore Buys JDSU's Cable Biz
Outsmart Raises $17M
Yahoo Enters VOIP Fray
Bay Micro Acquires Parama
Micromuse Buys GuardedNet
Telenor Sells Dial-Up Base
RHK: Rest in Pieces
Ericsson Swoops on Axxessit
Terabeam Grabs Proxim's Assets
Polatis, Continuum Merge
Inkra Goes Virtual
JDSU Says: 'Go Teem'
JDSU Tunes In Agility
Tdsoft Saves VocalTec
Meriton Completes Mahi Buy
Finisar Buys Transponders
Con Ed Sells to RCN
Infinera Bags Big Bear
French Carriers Announce Merger No. 9: JDSU Buys Acterna
JDSU (Nasdaq: JDSU; Toronto: JDU) went out and paid $760 million to buy a sustainable business in the testing market, which is starting to show decent growth again. At the time of the deal, Acterna was showing about $440 million in revenue and 8% growth -- not too shabby.
The Acterna deal was largely a finanical play, to help stablize JDSU's finances and diversify it into a growth market. Makes a whole lot of sense to us. File this one under: Sensible stuff to do with all your cash. (See JDSU Buys Into Testy Market, LR Picks M&A Strategy Finalists, Acterna Finds Redemption, JDSU Closes Acterna Deal, and JDSU Sells More, Cuts More.)
No. 8: Juniper Binges at the Buffet
Call it the "packet shotgun" approach to M&A. By its own admission, Juniper Networks Inc. (NYSE: JNPR) doesn't have an acquisition strategy. (See Juniper's Secret). We started the year telling you Juniper would go shopping (See Juniper's Slow Shopping Trip and Valley Wonk: Juniper's Shopping List.) And shop they did.
The routing rival of Cisco's went out and rapidly acquired a host of players doing security, packet inspection, and general Layer 4-7 networking stuff. For sure, it was a motley crew. There was Redline. There was Kagoor. There was Peribit. There was Funk. (See Juniper's Slow Shopping Trip , Juniper to Acquire Kagoor, Juniper Takes Two: Peribit & Redline, Peribit Deal: More to Come, Juniper's Kriens Stuck On Traffic, Juniper Buys Little Acorn , Juniper Gets Into $122M Funk).
Will it work? Who knows. Juniper loosely ties all this stuff together as its "Infranet" strategy, which clearly signals a big move into packet inspection and enterprise technology. (See Juniper Infranets the Enterprise.) But its quarterly financial numbers, so far, indicate it's still largely a core routing vendor.
Is Juniper done? Most likely not. Look for Juniper to be poking around the Ethernet switching and/or wireless networking space, since its internal product development in those categories has yet to bear any real fruit.
No. 7: Ericsson Munches Marconi
This was a bit of a let down. For news value, if you're going to chose between the Chinese and the Swedes, the Chinese can't be beat. Huawei Technologies Co. Ltd. , as reported exclusively on Light Reading, emerged as the early contender to aquire the UK's largest telecom equipment incumbent. (See Marconi: M&A Moves Next?, Marconi Talks on Takeover Talks, and Sources: Ericsson Mulling Marconi). Then a bidding war ensued, with Ericsson AB (Nasdaq: ERIC) taking the prize for a little over $2 billion.
Yes, Huawei would have made for sexier headlines. But Ericsson probably makes more sense. (See Ericsson Buys Bulk of Marconi and Ericsson/Marconi: The Fallout.) No. 6: CMP Buys Light Reading
Well, you might not have noticed, but it was important to us, at any rate. (See Light Reading Enters Chapter 2, CMP Acquires Light Reading.) No. 5: Cisco Buys Topspin ... and Other Stuff
Cisco Systems Inc. (Nasdaq: CSCO) would have led you to believe that it would be quiet in 2005 on the M&A front, sticking to its strategy of buying small, specialized security and software shops. Cisco doesn't like big acquistions, after all, right? Riighhhhht. Cisco started small, but then slowly built up to a crescendo. It's first decent-sized deal was Topspin Communications, A $250 million deal announced in April, perhaps as an answer to Juniper's "packet shotgun" approach. (See Cisco Takes On Topspin). It then became apparent that Cisco's "small" acquisition strategy was going to get quite large. Sure enough, Cisco quietly did nearly $10 billion in deals in 2005. (Cisco Chomps FineGround, Cisco Sniffs Out NetSift, Cisco Buys NetSift, Cisco KiSSes Up to Telco TV, Sheer Delight for Cisco, Cisco to Buy Nemo )
In the end, all the deals -- including the big one discussed below, led Cisco to win a coveted Lightie. (See LR Picks M&A Strategy Finalists and LR Names 2005 Leading Lights Winners). No. 4: eBay Scoops Skype
The VOIP service provider market had yet to bear any huge IPOs or even acqusitions. That is, until peer-to-peer VOIP player Skype Ltd. found its sugar daddy to the tune of a $2.6B purchase by eBay Inc. (Nasdaq: EBAY). (See Is Skype Worth $3B?, Readers Scoff at Skype Hype, EBay Buys Skype for $2.6B, Skype's EBubble).
Skype, after all, "sells" mostly free stuff. At the time of the deal, it was expected to generate revenue in the $60 million range for 2005. The deal shocked, puzzled, and impressed. Plus it made Niklas Zennstrom, Skype's co-founder and CEO, very very rich.
No. 3: Cisco Buys Scientific-Atlanta
It turns out that Cisco was just playing the rope-a-dope. After publicly stating over and over again that he didn't like billion-dollar deals anymore, Cisco CEO John Chambers went out and guided a $7 billion deal with some fellow good ole boys -- Atlanta-based cable equipment vendor Scientific-Atlanta Inc. . (See Cisco to Acquire Scientific-Atlanta, Scientific-Atlanta: Cisco's Sweet Deal?.)
Many "pundits" doubt Chambers's tongue-and-cheek comment that seemingly distinct corporate cultures will mesh by virtue of his Southern accent, but the fact is that this deal has many Cisco competitors running scared. Cisco picked up a sizable revenue stream while at the same time gaining a key strategic piece of next-generation IPTV networks -- the settop box. Alcatel (NYSE: ALA; Paris: CGEP:PA) and Microsoft Corp. (Nasdaq: MSFT) are still trying to figure out what it means for them.
It's a lot like when some guy starts picking up on your ex-girlfriend in a bar, spawning unexpected jealously. You don't miss the deal until somebody else gets it. (See Might Microsoft Want Sci-Atlanta?.) No. 2: Verizon Buys MCI
Sometimes the RBOCs can be like teenagers ... one of them goes out and buys a new toy and then everybody else on the block has to have one.
SBC made the first move when it announced last January that it would buy AT&T for $16 billion. Verizon Communications Inc. (NYSE: VZ) felt like it had to get in the mix right away, going after MCI. After the industry's saddest bidding war -- Verizon's only competitor was underfunded Qwest Communications International Inc. (NYSE: Q) -- Verizon won the tussle for North America's last real long-distance incumbent, MCI, paying about $6.75 billion. ( See SBC to Buy AT&T for $16B, SBC/AT&T: Possible Winners & Losers, SBC/AT&T Could Ignite M&A Frenzy.)
Despite the deal, which hasn't closed yet, Verizon will be only the second-largest incumbent provider in North America, with an expected market capitalization just North of $60 billion once the deal closes (we're assuming Verizon, unlike SBC, will keep its name... rather than changing it to MCI, or even Worldcom). The new AT&T currently trades at a market capitazliation of $81 billion. Touche. Sor far, AT&T is winning the battle of heft. No. 1: SBC/AT&T
Yes, as one of our technology gurus here at Light Reading has observed, sometimes it appears that since the bubble popped, the world is moving backwards. Slowly, the old Ma Bell is trying to reform itself, a trend that culminated this year with SBC buying AT&T, taking its name, and then forming what is now North America's largest service provider. (See SBC to Buy AT&T for $16B, SBC to Acquire AT&T, Execs Explain SBC, AT&T Pairing)
Good, bad, ugly? Who knows. What we do know, the monetary influx provided to the lawyers and bankers by this deal rivals a third-world nation's economy. When the smoke clears, what you'll have is ... one damn big phone company.
Will AT&T try to get bigger? Stay tuned. It still has a glaring weakness in wireless networks, and many expect it to make a run for BellSouth Corp. (NYSE: BLS), which owns the other share of Cingular Wireless . (See BellSouth at a Crossroads)
So that's it -- those were what Light Reading sees as the biggest deals of 2005. We expect more of the same in 2006 -- consolidation, consolidation, consolidation. Got any rumors or tips? As usual, send them to [email protected].
For more 2005 M&A coverage, see below:
Fabrinet Acquiring JDSU China Facility
Nortel Acquires IT Services Firm
EC Clears BT's Radianz Buy
ECI Lines Up Acquisitions
ECI to Buy Laurel for $88M
Syndesis Makes Its M&A Move
Fabrinet Completes JDSU Buys
Sun Announces SDP Plan
Citrix to Buy NetScaler for $300M
Zhone to Buy Paradyne for $184M
VSNL Pays $239M for Teleglobe
Intel Absorbs XML Startup
C&W Acquires Energis
Excel Catches $173M Brooktrout
Microsoft Buys Skype Rival
NTL & Telewest: Together at Last!
IBM Plugs Into DataPower
Sentito Builds Out Team
Level 3 Takes Out WilTel
Calix to Buy OSI
Alcatel Buys Into 2Wire
EarthLink Buys New Edge
Nortel Takes Tasman for $100M — R. Scott Raynovich, Editor in Chief, Light Reading