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Ericsson to acquire Telcordia for $1.15bn
14 June 2011
‘I’m going to be staying on,’ says Telcordia CEO as Ericsson pays $1.15bn cash for private-equity owned company
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Ericsson
Telcordia
private equity
OSS/BSS
Providence Equity
Warburg Pincus
Ericsson is buying 100% of telecoms IT specialist Telcordia from its private-equity owners, Providence Equity Partners and Warburg Pincus, for $1.15 billion. The deal is expected to close by the end of 2011.
Telcordia’s owners are known to have been looking for a buyer for some time, with some reports saying they were expecting as much as $1.5 billion. The two private equity owners have owned the company for seven years, when they bought it from US employee-owned consultancy SAIC for $1.35 billion.
In a conference call with analysts and media immediately after the deal was announced, Telcordia CEO Mark Greenquist said: “I’m going to be staying on. I’m not going anywhere.”
He said that his major achievement since he became CEO of Telcordia in 2007 was to increase the company’s business outside North America. “When I joined we were still largely a North American focus. Our non-North American revenue is 30%, up considerably on where is was a few years ago.”
Green
Greenquist, a former General Motors executive who was appointed CFO of Telcordia two years before becoming CEO, said of the deal: “It was clear that we at Telcordia and Ericsson see the world very similarly.”
However Ericsson CFO Jan Frykhammar admitted that “revenue has been flattish” over the past few years. In the year ending 2010 the company generated revenues of $739 million, though Frykhammar did not give figures for previous years. Ebitda was $184 million in the same period. “There has been pressure on the bottom line in the last few years,” he accepted.
Telcordia’s debt will be paid off “as soon as possible”, though he refused to say what the interest payments are.
In terms of earnings Ericsson’s president and CEO Hans Vestberg said that the company expects the deal to be “accretive within 12 months of closing”.
Ericsson already has a big OSS/BSS business, especially since it bought LHS in 2007 for €310 million. The LHS operations were finally rebranded under the Ericsson name earlier in 2011 and the Telcordia brand is also likely to be absorbed, he hinted.
“When this is over it will be an Ericsson entity. There are brands inside that that are important,” said Vestberg.
The CEO avoided a question about the reaction of politicians and regulators in Washington DC to foreign ownership of a company that has a key role in managing US national infrastructure. “We will go through the regulatory approvals process,” was all he would say.
After the deal is closed most of Telcordia will be managed as part of Ericsson’s multimedia business, said Vestberg. He said Telcordia is “complementary with LHS” and the business of the former LHS is part of multimedia.
“Telcordia brings very skilled people and knowledge, a large business in North America and other markets, as well as a good multi vendor product portfolio.”
Vestberg added: “We have global presence and scale, global services capabilities and superior knowledge about networks and network performance, as well as an already established position in the OSS/BSS space. It is a perfect fit.” he added.
Greenquist added: “We’re moving from a world with billions of subscribers to tens of billions of connected devices.”
Vestberg agreed that the were big opportunities in “cloud services and machine-to-machine”. He said that the OSS/BSS business is growing 6-8% a year, “but this is a fragmented market”.
Telcordia’s patents “are not a major source of revenue over the past few years”, admitted Greenquist. Intellectual property is “mainly going into the products”, he added. “Our patent portfolio compared with Ericsson’s is relatively modest.”
Priorities over the next few months are to get the deal closed, said both Vestberg and Frykhammar. “We have a lot of work till the final closing,” said Vestberg. GTB