Velocix: Verizon Deal Changed Everything
Striking a deal with Verizon Communications Inc. (NYSE: VZ) was the catalyst that ultimately led content delivery network (CDN) specialist Velocix into the arms of Alcatel-Lucent (NYSE: ALU), Velocix CMO John Dillon tells Light Reading. (See AlcaLu Buys CDN Specialist Velocix.)
And according to a well-placed industry source, AlcaLu paid a lot less than the $20 million price tag being suggested by at least one CDN sector pundit.
Providing the backstory to AlcaLu's latest acquisition, Dillon explains that completing and serving CDN services contracts -- the company has struck more than 200 deals with "companies of all shapes and sizes" for the transport of Website and video traffic -- is a relatively simple and quick process, sometimes taking just days. It's also relatively easy for customers to switch between CDN service providers, too.
Selling CDN infrastructure, such as Velocix's Metro node, to carriers, though, is a different proposition, as Dillon and his colleagues found out when working with Verizon Communications Inc. (NYSE: VZ), the CDN company's only announced Metro gear customer to date. (See Verizon & Velocix Team Up for CDN Services.)
For carriers, "that's a strategic purchase. They want to buy from a company that they know will be around for a long time. We managed to bring Verizon on board, but it was a challenge. They had a lot of questions... It was tough," says Dillon.
With much of the company's focus on getting the Metro product deployed in service provider networks, the management team decided early this year to seek a "corporate backer" that could give it the solidity and longevity with which carriers feel comfortable. "We talked with a number of different players, including bandwidth management companies and service providers, but we decided that a NEP [network equipment provider] was the best fit."
Dillon won't name any of the other companies with which Velocix held discussions, but it didn't take too long before AlcaLu's IP division, headed by Basil Alwan, expressed its interest. From then, the deal was driven on AlcaLu's side by Steve Vogelsang, VP of business strategy at the IP division, says Dillon, and the two companies started approaching "joint prospects" before the acquisition deal closed last week.
The timing was good for AlcaLu, which, according to spokesman Kurt Steinert, had been considering developing its own technology so it could build dedicated CDNs for carriers, "but we realized it was extremely complex, so decided to pursue an acquisition. Velocix is good for us because it's very focused on video."
Velocix, at least for now, will continue to operate as a stand-alone operation within AlcaLu's IP division, with all 35 staff, the majority of whom are in the U.K., still on board. The company has seen some traction in the U.K., where it has been involved in trials with cable operator Virgin Media Inc. (Nasdaq: VMED) and the British Broadcasting Corp. (BBC) . It's also believed to be working with BT Group plc (NYSE: BT; London: BTA) on its CDN plans. (See BT Unveils Its CDN Plans and Virgin Media Weighs CDN Options.)
Financial details of the acquisition have not been released, and neither party will discuss Velocix's sales or profitability position, though one well-placed industry source tells Light Reading that AlcaLu paid way below the $20 million to 25 million suggested by one industry pundit. In terms of sales, it's believed Velocix is generating annual revenues in the low single-digit millions of dollars and is yet to break even.
During its time as Velocix, and previously as CacheLogic, the company raised about $25 million from investors, including Amadeus Capital Partners Ltd. , 3i Group plc , and Pentech Ventures. (See CacheLogic Raises $20M.)
Some of that has gone the way of the French grape-growing community, as Dillon admits he "can't remember how many" bottles of champagne were uncorked when the takeover closed.
You see, not everyone drinks Pimms in the U.K. during the summer...
— Ray Le Maistre, International News Editor, Light Reading