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Redknee CEO: More M&A on the Way

Ray Le Maistre
6/26/2015
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Redknee CEO Lucas Skoczkowski is planning on further M&A activity in an effort to make his company a $1 billion turnover communications software and services powerhouse.

And given his track record, you wouldn't bet against him achieving that goal.

Talking to Light Reading shortly after he announced his latest cut-price acquisition -- the €38 million (US$42.6 million) swoop on Orga Systems , for which there was certainly competition -- Skoczkowski noted that there are bigger targets in his sights and that he expects to be making his next move in the not too distant future. (See Redknee Snaps Up Troubled BSS Vendor.)

"Our industry is heading towards consolidation. We need to either get bigger or do something else. We need to be able to do more for our customers," noted Skoczkowski. "I hope to do more business in the next six to nine months. I want to do deals that customers will understand and which will make customers' lives easier. There's lots to do," he added.

The tireless CEO has already grown Redknee Inc. (Toronto TSX: RKN) significantly in recent years as a result of his M&A strategy, taking it from a sub-$60 million turnover company in 2012 to one that generated revenues of nearly $260 million in its fiscal year ending September 2014.

Now he believes Orga can help him take Redknee closer to the $500 million annual revenues threshold, though a current straight addition of Orga's business will more likely help the BSS systems vendor break the $300 million revenues barrier in the short term.

MWC Moment
Lucas Skoczkowski: Proud CEO.
Lucas Skoczkowski: Proud CEO.

Redknee's investors clearly think Skoczkowski knows what he's doing: Redknee's share price is up by 6.7% since the Orga deal was announced late Tuesday and currently stands at $4.95 on the Toronto Stock Exchange, giving Redknee a market capitalization of almost C$540 million (US$437 million).

And the process of integrating Orga should be relatively quick and pain free compared with Redknee's acquisition of Nokia's BSS assets. "This is a straight acquisition, not a carve out. This should be simple. Some people told me that the last one [Nokia deal] was a suicide mission."

But the deal will not be pain free. There is product overlap and Orga comes with a lot of staff.

Skoczkowski likes to talk about the positives. "It's good to have Wolfgang and Ralf [Wolfgang Kroh, Orga CEO and Dr. Ralf Guckert, Orga CTO] on board. I need more horsepower to run the company now that it is getting so big. This is a great opportunity for us to grow and take care of more customers. I like the products and Orga has made great efforts in the non-telecom world that will be very helpful," especially in building a story around charging and billing for IoT-related applications and services.


Want to know more about developments in BSS and other service provider IT (SPIT) sectors? Check out our dedicated SPIT content channel here on Light Reading.


But what about the other 500 or so staff that Orga has? Redknee has about 1,400 staff and revenues of $260 million a year -- Orga has 500 staff and annual revenues just short of $70 million. Taking Orga on board without changes would mean increasing sales by about 25% and headcount by about 36%. Staff cuts look very likely.

"We will announce details after the close of the deal. We are working very closely with the management team and I am very conscious of doing the right thing. Almost half of Orga's staff are based in Latin America and that is a very important region for us -- we recently won a major cloud deal there and we need more people on the ground close to customers. Orga also has people in the CIS countries and in the Middle East," where Redknee needs more people, he added. "I am constrained by rules about what I can say," he noted, pragmatically.

And what about overlap of customers and products? Skoczkowski says there is hardly any overlap between Redknee's 200+ customers and Orga's 45, and where there is, at Telekom Austria, there is no product overlap at that particular carrier.

As for the product portfolio, he says Orga brings new capabilities to the Redknee toolkit -- order management, product catalog -- but notes that there will need to be decisions made about the charging platforms that both companies have. "It will be decided by what the customers want," stated the CEO.

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

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mendyk
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mendyk,
User Rank: Light Sabre
6/30/2015 | 8:32:48 AM
Re: M&A
According to some smart guy from Yale, the average life span of an S&P 500 company is now 15 years -- and that's the creme de la creme. So predicting a 40% attrition rate in a fast-changing industry is a pretty strong limb to go out on. It's not as much of a slam dunk as predicting that the sun will rise in the morning, but it's hardly visionary according to the actuarial tables.
Kruz
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Kruz,
User Rank: Light Sabre
6/30/2015 | 3:34:07 AM
M&A
Skoczkowski is on a shopping spree but he sees things right. Cisco former CEO confirms his vision, 40% of today's companies will not exist in 10 years; you have to grow big to stay relevant.
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