GENBAND Expands

Purchase of Tekelec SSG Assets Likely Signals Coming IPO

Perhaps the biggest VoIP news during the recent Spring VON was not show news at all, but instead word that GENBAND was planning to buy the switching solutions group of Tekelec, a deal expected to close last month.

This agreement is noteworthy not only because it creates a much larger entity, but also because it’s a “reverse acquisition” and could signal that another VoIP-related IPO is not far off.

It’s considered a “reverse acquisition,” given GENBAND had revenue of $30 million in 2006 whereas Telekec’s switching business last year reported $110 million in revenue.

Another interesting aspect of this deal is that it puts GENBAND President and CEO Charlie Vogt in control of several of the assets he had managed during his past positions at Taqua and Santera Systems, which — along with VocalData — in past years were acquired by Tekelec and put into its 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. Vogt says he even helped orchestrate Tekelec’s purchase of VocalData.

GENBAND’s Charlie Vogt

While some might focus on the softswitch assets of Santera and Taqua, Vogt emphasizes that this deal is really all about applications and gateways. “For GENBAND this creates enviable applications and gateway platforms for us,” says 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, says 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,” says 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.

Noting that he views the Santera solution as a media gateway as opposed to a softswitch, Vogt said the company would reveal its plans for Tekelec’s softswitch assets following the close of the deal.

This agreement with Tekelec follows GENBAND’s acquisition of Syndeo in November 2004, the purchase of BayPackets in August 2006, and the acquisition of customers from Siemens in September 2006. The increased product portfolio and customer count through this Tekelec deal, as well as the 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,” says Vogt, adding that the company is “not rushing to an IPO”, but would entertain one in 2008.

Details of the Deal

Tekelec will be a shareholder in GENBAND, with a 19.9 percent common equity interest, as a result of the deal. Also as part of the agreement, GENBAND is paying Tekelec $1 million in cash and assumption of certain switching solutions group liabilities. Telekec, meanwhile, will be paying some of the restructuring costs for the new company, but not investing any cash directly into the GENBAND coffers.

Although the VoIP IPO scene got a black eye last year, given Vonage’s abysmal performance when it hit the public markets, things greatly improved as Acme Packet went public last October.

At VON, BroadSoft declined to comment on the IPO talk.

The combined media gateway and softswitch market totaled $2.8 billion worldwide last year. Meanwhile, manufacturers of VoIP and IMS equipment for service providers had a stellar year in 2006, with worldwide revenue jumping 32 percent and reaching $3.3 billion in 2006.

And things look to get much better still. A total of $25.2 billion is expected to be spent on VoIP and IMS equipment worldwide during the five-year period ending in 2010, a year during which spending in this area is forecast to reach $6.9 billion worldwide, according to Infonetics.

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