Redknee Snaps Up Troubled BSS Vendor
Redknee is adding further BSS capabilities to its telco software portfolio with the acquisition of charging and billing systems specialist Orga Systems, which had been looking for a buyer since hitting hard times in the past year.
Because Orga Systems was effectively a distressed asset, Redknee Inc. (Toronto TSX: RKN) is buying the German BSS specialist at a fire-sale price -- just €38 million (US$42.6 million) in cash.
That represents more canny business dealing by Redknee's charismatic CEO Lucas Skoczkowski, who has built his company into one of the giants of the BSS sector through an aggressive M&A strategy in recent years, growing 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.
Skoczkowski has a history of snapping up bargains from companies experiencing hard times: He engineered the acquisition of Nokia's BSS assets in 2012 for an eyebrow-raising fee. (See Redknee to Pay $52M for NSN's BSS Unit and Redknee CEO: Size Matters.)
Now Skoczkowski is at it again, sealing a deal to buy Orga Systems, a company with a decent reputation in the BSS market, about 500 staff and annual revenues of about €60 million ($67.2 million) generated from about 45 customers. (See Orga Wins BSS Deal at Avea and Sunrise Deploys Orga's BSS.)
However, the company had been losing money -- €32.3 million (36.2 million) in 2013 alone -- and it finally became insolvent in April this year when its banks declined to extend a €25 million ($28 million) credit facility, a move that forced the company to enter into bankruptcy proceedings and seek a buyer.
So it started looking for a buyer and attracted interest from a number of companies: Light Reading understands that both Ericsson AB (Nasdaq: ERIC) and Netcracker Technology Corp. took a close look at Orga. Along with Amdocs Ltd. (NYSE: DOX), Ericsson and NetCracker are two of Redknee's main rivals in the BSS sector.
But it is Skoczkowski that has struck the takeover deal, which should close by the end of Redknee's fiscal year, which ends in September.
Two things will have attracted potential buyers to Orga's fire-sale assets: its technology and its customer base.
"Orga's transaction engine is rock solid -- there is value in this for a company that can fit it [into its portfolio]," noted ICT Intuition president and long-time BSS industry analyst Nancee Ruzicka during a recent conversation with Light Reading.
That transaction engine, the GOLD Convergent Charging and Billing engine that can rate and charge for services in real time, has proved attractive not only to communications service providers (CSPs) such as Telecom Italia and Turkey's Avea but also for utility and automotive companies: Orga's customer base includes a number of energy suppliers, railway companies and car manufacturers (including BMW).
Like most vendors, Redknee knows that industry vertical diversity is vital to business growth: "We expect that this will help us accelerate Redknee's expansion into new vertical markets," noted Skoczkowski in Redknee's official announcement about the deal.
Despite Orga's financial woes, Redknee expects the acquisition to be accretive to its earnings. How it will achieve that -- headcount reductions? -- and to what extent Orga's technology portfolio will overlap with Rednee's existing technology portfolio, which also has real-time convergent charging at its heart, should become clear in the coming months.
In the meantime, here is what Skoczkowski had to say about innovation and the telecom sector's slow pace of change in a video interview from 2014:
— Ray Le Maistre, , Editor-in-Chief, Light Reading