Policy + charging

Tekelec Back in M&A Mode

The new private equity owners of Tekelec are believed to be seeking a buyer for its Broadband Network Solutions business, which includes the company's policy control, diameter signaling router and subscriber data management (SDM) assets.

Tekelec was acquired for $780 million in January by a consortium of investors lead by Siris Capital Group. Following that deal, the company was split into two legal entities: Broadband Network Solutions, the more leading edge, growth part of the company; and Global Signaling Solutions, the SS7 signaling side that is declining but still generates most of the company's revenues (approximately $400 million in 2011). (See Tekelec Acquisition Closes and Has Tekelec Been Undervalued? )

Now, according to a number of industry sources, the owners are looking to cash in on the growth part of the business and manage the older side of the company that should generate cashflow for a few years yet.

Tekelec is saying nothing about the speculation.

Industry sources, though, say the Broadband Network Solutions unit has been offered to a number of companies, including the IP router vendors and IMS (IP Multimedia Subsystem) players. One industry executive ventured a potential sale tag of $500 million.

At first glance that looks very high. But Tekelec paid $165 million for policy management server vendor Camiant and SDM specialist Blueslice Networks in May 2010. (See Tekelec Splashes $165M on SPIT Specialists.)

Since then, the policy server market has expanded significantly, more than doubling from around $320 million in 2010 to nearer $700 million this year, according to Heavy Reading forecasts. (See Policy Specialists Squeezed by Vendor Giants.)

As a result, Tekelec could reasonably seek a higher price for the policy server business (while the SDM business is still of nominal value).

But it's Tekelec's diameter signaling router (DSR) business that could deliver more promising growth. The company has been adding new deals steadily during the past year and now claims to have 19 DSR customers in 10 countries, including deals with Verizon Wireless and other major U.S. operators. (See Tekelec Plays Mediator for Operators & Apps, Tekelec Scores a Diameter Deal and Tekelec on a Tear.)

The market for diameter routers, which will be needed by LTE and 3G operators for signaling traffic management, is set to grow steeply in the next few years, with industry executives suggesting the market could be worth $50 million or more in 2012. Yankee Group Research Inc. analysts expect the market to be worth $212 million by 2015. What might be whetting Tekelec's appetite, too, is that DSR rival Traffix was acquired in January by F5 Networks Inc. (Nasdaq: FFIV), reportedly after a bidding war with Ericsson AB (Nasdaq: ERIC). While F5 did not reveal a price, the price was believed to be about $130 million. (See F5 Sends LTE Signal With Acquisition.)

And with Tekelec arguably the DSR market leader currently, its diameter-related business alone could be worth close to $200 million, if not more, some industry watchers suggest.

This, then, might be a good time to claw back some quick returns on the initial acquisition investment.

But who might take Broadband Network Solutions business off Tekelec's hands? Industry observers doubt there would be any interest from the major infrastructure players, many of which already have policy and subscriber management capabilities, with DSR products in development.

Instead, the major IT vendors, such as IBM Corp. (NYSE: IBM) and Oracle Corp. (Nasdaq: ORCL), might be candidates, while Genband Inc. and NEC Corp. (Tokyo: 6701) were also namechecked as companies that could show some interest.

— Ray Le Maistre, International Managing Editor, Light Reading

goundan 12/5/2012 | 5:31:34 PM
re: Tekelec Back in M&A Mode

Blue Slice ... went nowhere. Why would anyone pay for this portion?

Camiant ... industry leaders for PCRF excluding OCS. The subscriber growth does not match the rate of decline seen in per subscriber revenue. Actual sales contracts will tell the real story.

Diameter Router ... something new and carriers buy it due to Tekelec's SS7 pedigere and sales force. Absent the two, where would that put the acquiring company (outside of AlcaLu or Ericsson) with respect to expanding the sales of this product?

If the market is growing as big as they claim, then why keep the fat cash cow and dump the "growing" business? They'll probably get some sucker to buy it for $500M or more, but I would certainly love to have some of what these private equity guys are smoking. 

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