In an effort to expand its portfolio on the applications and trunking gateway front and possibly position the company to go public, GENBAND today divulged its plans to buy the switching solutions group of Tekelec.
Tekelec will see its equity interests in Santera Systems LLC and Taqua Inc, as well as the SSG business assets it holds, in exchange for a 19.9 percent common equity interest in GENBAND, $1 million in cash and GENBAND’s assumption of certain SSG liabilities.
Tekelec will have no operational role in GENBAND, although it will be a GENBAND shareholder. It also will be paying some of the restructuring costs for the new company, “but not investing any cash directly into our coffers,” said GENBAND President and CEO Charlie Vogt.
It should be mentioned that this deal has at least a couple of unusual twists.
For one, GENBAND, which had revenue of $30 million in 2006, is buying a much larger business. Telekec’s switching division last year reported $110 million in revenue.
Another interesting aspect is that the deal puts Vogt in control of several of the assets he managed during his time at Taqua and Santera Systems, both of which are now part of the Tekelec switching solutions group.
Vogt is the former president and CEO of Taqua, which was acquired by Tekelec in March 2004. He was an executive at the former Santera, also now part of Tekelec. And he even helped orchestrate Tekelec’s purchase of VocalData.
“This is a dream for me, it gives me an opportunity to complete a mission that wasn’t finished,” said Vogt, who expects the new company to be profitable in the third quarter and “very profitable” in the fourth quarter.
In mentioning the unfinished mission, Vogt is referring to the fact that Tekelec wasn’t able to realize the potential of the Santera, Taqua and VocalData products it acquired over the years. Tekelec’s switching business lost $70 million last year. That problem can be attributed, at least in part, to Tekelec’s switching business’ high overhead due to employee headcount, which was more than 600, said Vogt, adding that GENBAND will have 500 employees after closing the Tekelec deal.
While some might focus on the softswitch assets of Santera and Taqua, Vogt emphasized that this deal is really all about applications and gateways.
“For GENBAND this creates enviable applications and gateway platforms for us,” said Vogt. “With legacy GENBAND and legacy Syndeo, and now Santera/Taqua/VocalData, we really have the opportunity to put together a kind of company that doesn’t exist today.”
GENBAND already has applications solutions focused primarily on unified communications and things like prepaid services, said Vogt. The VocalData assets of the Tekelec switching business add to that by bringing in a more hosted IP-type solution.
“VocalData is really a hidden jewel in my mind,” said Vogt. “It’s an awesome platform.”
And while GENBAND has small and mid-sized universal gateways, the Santera/Telekec products add a high-density trunking gateway and a wireless trunking gateway to the mix.
Still unclear to everybody except GENBAND is how the softswitch assets will figure in to all of this.
“I can’t tell you what’s going to happen with those because I don’t have clear answer,” said Vogt, adding “in the next 30 to 45 days [at which time the deal is expected to close] that will become crystal clear.” He noted that he views the Santera solution as a media gateway as opposed to a softswitch.
Following the close of the deal, the company will be headquartered in Plano, Texas, where both companies now have headquarters. It will have R&D facilities in China, India and Texas. And, in addition to Vogt, its leadership will consist of COO Jay Whitehurst (now president and general manager of Tekelec’s switching group), general manager of the applications business unit John Boden (GENBAND’s current CTO and a former Nortel executive), and Keith Landau, an R&D manager for Tekelec, as general manager of the new company’s gateway business unit.
GENBAND and Tekelec’s switching solutions today each have about 300 customers. Vogt said there appear to be 525 non-overlapping customers.
The increased product portfolio and customer count through this deal and other recent GENBAND acquisitions could help give GENBAND the girth for a potential IPO.
“We have been building GENBAND to be a public company for some time,” said Vogt. The company is “not rushing to an IPO,” he said, but it would entertain an IPO in 2008.
GENBAND has built itself up into one of the VoIP powerhouses in the industry through the acquisition of Syndeo in November of 2004, the purchase of BayPackets in August of 2006, and the acquisition of customers from Siemens in September of 2006.
GENBAND www.genband.com
Tekelec www.tekelec.com
