Entries in Deals: Other (11)

Wednesday
Jan112012
DateWednesday, January 11, 2012 at 4:50PM

Granite State Acquires Cocci Computer Services

Expands Service Offerings and Gains Statewide Presence

Weare, N.H.-based Granite State Communications (GSC) announced on December 28, 2011 it has completed its acquisition of Hooksett, N.H.-based Cocci Computer Services, a computer networking and hardware solutions company.  Financial terms of the deal were not disclosed.

Over the last few years, I’ve often written about the public ILECs and their search for new revenue streams. Business services, data centers and cloud computing are just a few of the various new services some ILECs are providing as a way to offset the decline of the traditional telephone business.   With some experts predicting the public switched telephone network (PSTN) will be gone by 2018 as Americans are increasingly cutting the cord in favor of wireless and IP-based voice services, ILECs no longer have time to take a “wait and see” approach.  And with its acquisition of Cocci, GSC has taken a proactive approach to the future.

GSC today is the result of the merger of what were once four separate telephone companies: Chester Telephone Company, Sandown Telephone Company, Weare Telephone Company and Triangle Telephone Company.  Company origins go back to 1877 in Chester, N.H. when the state legislature granted a charter to what was then known as the Chester and Derry Telegraph Company.  GSC provides telephone and Internet services to 9,000 customers in seven N.H. communities, and has recently been deploying fiber optic cable in portions of its service area.  But, access lines have fallen at a compound annual rate of approximately 6% over the last two years. And while the rate of losses slowed considerably in 2010 compared to 2009, it’s unlikely that growth in broadband revenue will both offset declining access line revenue and provide long-term sustainable growth.

Cocci has been providing computer networking solutions to small and mid-sized businesses statewide for more than 28 years.  The Company offers a range of services including network installation and security, server and desktop monitoring, and offsite data backup and disaster recovery, with plans to introduce additional cloud services and mobility solutions in the near term.  “These services fit perfectly into the long-range planning for Granite State Communications as we work to increase our customer base and expand our list of products available to the public,” says GSC president Susan Rand King.

By acquiring Cocci, GSC has gained a new list of services it can offer to its existing customers. But perhaps more importantly, GSC, through Cocci, now has a statewide presence where before it was limited to its seven community service area. This acquisition certainly provides GSC with a platform for growth, and it now comes down to execution.

AuthorMatt Lydon | Comments Off |
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Thursday
Sep082011
DateThursday, September 8, 2011 at 11:57AM

Hosted VoIP Providers Vocalocity and Aptela Complete Merger

Merged Entity to Operate as Vocalocity

The saying goes "there are only two certainties in life: death and taxes." But for the past few months you could add another guarantee to that list—more M&A activity in the cloud. Between LECs looking to diversify revenue streams and unified communications providers looking to expand their footprints, smaller cloud-based providers have been snapped up on a regular basis this summer. This consolidation continued with the late-August announcement of a merger between Atlanta-based Vocalocity and Virginia-based Aptela.

The merger had already been completed prior to its August 23rd announcement, with the deal’s financial terms undisclosed.  The new company will operate under the Vocalocity name, and Wain Kellum will retain his post as the Vocalocity ceo. Aptela founder and hosted VoIP technology veteran Mahesh Paolini-Subramanya meanwhile will serve as the cto of the merged organization.

From services to target markets and funding sources, there are many similarities between the organizations. Both private companies specialize in providing hosted VoIP services primarily to small businesses, and both are backed by venture capital funding. Vocalocity delivers cloud based phone services to its 11k clients that average about 8 phone lines or devices per account, while Aptela serves a client base of 4k customers that average only 3-4 lines per account. Vocalocity and Aptela’s service areas overlap in New York, California and Texas, while each company also serves their hometowns of Atlanta and Washington D.C.

Vocalocity was founded in 2001 and later received $7.5 in venture capital funding in 2005 from multiple Georgia-based investors including Five Pace Ventures and Imlay Partners. It grew rapidly in 2008 after securing an $8m capital injection from Noro-Moseley Partners in late 2007. In the years to follow Vocalocity increased its top line four-fold, from $2.2m to $8.9m in 2010. Aptela, founded in 2005, attracted a $5m investment from JMI Capital in 2006, and grew its revenue at a more modest pace from $6.6m in 2007 to $8.5m in 2010.

Kellum paints the deal as a straight-forward move to grow Vocalocity’s hosted VoIP footprint—a logic that’s easy to follow given the lack of differentiation between providers’ services. “The decision to merge with Aptela was really quite simple. We both had a similar purpose, but by combining the two companies we’re much bigger and much stronger. We are by far the fastest growing company that offers a hosted VoIP service,” commented Kellum on Vocalocity’s website.

The company’s expansion efforts are far from over as last week it reported a $9.5m equity offering to the SEC—the largest one time investment into either company to date. Based on recent comments from Kellum at least some of this capital will be invested in infrastructure development for Aptela, while he has also suggested the more M&A is not out of the question.

It would not be surprising however, if Vocalocity ultimately turns up as an acquisition target as opposed to a buyer. Given Vocalocity’s growth profile, and the healthy appetite for “cloud” and hosted VoIP providers (and their small business clients) of late, the company may be very attractive for LECs in need of growth (see: WWVY/Alteva). If attracting a takeover bid is indeed on Vocalocity’s radar, it has a ceo experienced with the process. Prior to joining the company in 2010, Kellum served as ceo for many technology based startups, including Extreme Logic, which he founded, grew, and eventually sold to tech-giant Hewlett Packard. 

Future M&A aside, Vocalocity seeks deeper penetration in a space that is projected for strong growth. In-stat forecast in a recent study that small office spending on IP telephony will increase by 83% between 2010 and 2015. The market for these services remains competitive, however, with telcos, cablecos and UC providers vying for small business' communications dollars. For now, Vocalocity and Aptela have decided to stay in the fight. Given the competition however, achieving sustained growth is not a guarantee.

AuthorAdam Brissette | CommentPost a Comment |
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Thursday
Aug182011
DateThursday, August 18, 2011 at 8:30AM

Google Seeks More Than Patents in $12.5b Purchase of Motorola

Acquisition Could Serve as Vehicle for Google TV

When faced with legal disputes, most companies seek counsel and hire a law firm. When you’re Google (Nasdaq:GOOG), hit with patent lawsuits from tech giants Apple (Nasdaq:AAPL) and Microsoft (Nasdaq:MSFT), you spend billions of dollars to buy a company with more patents that you can count.

Google announced on Monday that it will purchase Motorola Mobility (NYSE:MMI) for $12.5b in cash, and subsequently launched a counterattack in the smartphone war. The price tag represents a 63% premium to Motorola’s recent trading levels.

While Google has admitted that legal battles surrounding its Android software at least partially drove its interest in Motorola, the web giant has played it close to the vest as to how it will use the acquisition in the future. This lack of clarity makes hypothesizing about Google’s intentions all the more fun.

Let’s start by addressing the patent angle. A few weeks back, Google publicly accused Apple, Microsoft and Oracle (Nasdaq:ORCL) of ‘patent bullying’ that could lead to the destruction of its Android ecosystem. While the thought of a company the size of Google accusing others of bullying is laughable, the argument is understandable.

A single smartphone can have up to 250k patents associated with it—none of which Google owned prior to Monday. In early August, a group of companies led by Apple, Microsoft and Oracle purchased over 6000 patents from Novell and Nortel, including patents on 3G and 4G wireless networking, for $4.5b. Google, also involved in the bidding process, was outbid by around $1.4b.

Patents in hand, the tech consortium is looking to charge hefty licensing fees to Android manufacturers—who use the patented intellectual property—driving up the cost of Android  smartphones, and consequently making iPhones and Windows phones more attractive. With 40% market share, Android powered phones currently top the smartphone market, followed by Apple (27%), Research in Motion (24%) and Microsoft in a distant fourth place (6%).

With this as a backdrop, Google’s purchase of Motorola Mobility and its 24k active and pending patents appears to be an aggressive move to defend its smartphone turf. While Google does not receive cash directly from Android sales, it generates revenue from both app downloads, and web searches from Droid users. Now armed with patents of its own, Google has more leverage to settle current lawsuits against it, and to discourage future lawsuits.

David Drummond, Google’s chief legal officer commented on the patent acquisitions on Monday’s conference call. “Look, we've been saying for some time that we intend to protect the Android ecosystem, it's under threat from some companies. We're not prepared to talk specific strategies. We think buying Motorola and having the portfolio is a good thing.”

In addition to the patents, there exists a natural connection between Google and Motorola. As a founding member of the Open Handset Alliance in 2008—which developed Android—Motorola bet big on Google’s operating system, using the platform exclusively for its smartphones and later for its Xoom tablet. It follows that the company’s 2Q11 guidance was heavily focused on Android phones.

“While the smartphone market continues to expand rapidly all around the world, it is still in its early stages,” Motorola Mobility ceo Sanjay Jha commented. “To address the growth opportunity in the second half of the year, we have a strong product lineup, including PHOTON 4G and TRIUMPH at Sprint, Android X2, Android 3 at Verizon.” In other words, Motorola’s growth in the second half of 2011 is dependent on four Google-powered devices. 

Motorola’s recent performance has been tied to Android sales as well. It sold 4.4m smartphones in 2Q11, driving its quarterly revenues up 28% YoY. On the other hand, sales of the Xoom since its January 2011 launch have been disappointing. In 2Q11 Motorola only shipped 440k Zoom tablets, compared to Apple’s 9.2m iPad sales. As the current saying about the tablet consumer market goes—people don’t want tablets, they want iPads… Nevertheless, Motorola is committed to pushing its Android powered tablet.

Another interesting aspect to the Motorola acquisition is how other Android phone makers will react to Google’s purchase of a hardware manufacturer. Within the Android ecosystem, there are 400 devices made by 35 different manufacturers—including Samsung and HTC. Owning Motorola, Google will compete with the other producers of Android handsets. Thus far, both Samsung and HTC have made positive comments on the deal, referring to it as a win for all Android manufacturers. Google ceo Larry Page has said all the right things as well, reinforcing Google’s commitment to run Android as an open platform, with Motorola remaining a licensee of the software.

As the battle for smartphone turf continues, more M&A activity of handset makers and patent owners is possible. While Microsoft has already partnered with Nokia to launch the Windows 7 Phone, the Google deal may pressure Microsoft to become a buyer. Microsoft, which was reportedly interested in acquiring Motorola’s patents, would logically be interested in Nokia’s 11k patents. Elsewhere, Blackberry maker RIM, despite its recent struggles, could appeal to a potential buyer with its enterprise centric focus and its portfolio of mobile data patents.

For Google, the Motorola purchase will play a strategic role longer term, in addition to protecting Android with its patents. While entering the phone manufacturing space does not offer a huge upside for the web giant, Motorola’s other business may: set top boxes for cable television. Google TV never caught on as a platform, but in the future Google could integrate it into Motorola’s set-top boxes. This mix of web and television would bring Google’s search engine into your living room, creating another source of ad revenues for Larry Page and company. After all, Google at its core is an advertising company—it wants to buy and show as many ads as possible.

The potential re-packaging of Google TV, however, is far down the road if it happens. Until then, sit back and enjoy the smartphone wars. And for those of you waiting for the recently rumored Motorola-manufactured Windows Phone 7, I wouldn’t hold your breath.

AuthorAdam Brissette | CommentPost a Comment |
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Wednesday
May112011
DateWednesday, May 11, 2011 at 10:09AM

Microsoft Spending $8.5b for Skype

Really???

There’s no question that Skype, the “free” VoIP voice and video calling service, has changed the landscape for “phone” calls since its inception in 2003.  But the news yesterday that Microsoft (Nasdaq:MSFT) is paying $8.5b to acquire the company—just a few years after Ebay sold it with a valuation of $2.75b—gave me pause.

According to the Wall Street Journal, Skype now has 663m registered users worldwide—that’s about 10% of the entire global population! I admit to becoming a recent user of the service, and even my parents—most definitely not  early adopters!—have signed on.  Now we can see each other (in often jerky, delayed video) when we talk…my parents love it, but from where I sit, it just means I have to put on makeup and do my hair before calling, even on Saturday morning…

Considering the sacrifice of my “Saturday morning slug” habit, I can assure you that I wouldn’t use Skype if I had to pay for it, and neither would Mom and Dad.  Nevertheless, about 8.8m of Skype’s users are “paid” subscribers, and Microsoft is paying nearly $1,000 apiece for them.

In 2010, Skype reportedly had $860m in revenue, up from $551m in 2008, for a 25% compound annual growth rate.  But the Luxembourg-based company has accumulated substantial losses over the years. Microsoft ceo Steven Ballmer said yesterday, "We're buying a company with EBITDA over $250m…We see an opportunity to accelerate its revenue and profit base."

Let’s hope that acceleration happens quickly…based on Ballmer’s EBITDA figure, Microsoft is paying 34x cash flow!  It’s paying 10x trailing revenue and that multiple only falls to about 8.5x if you assume that revenue grows another 20% this year.

I understand the opportunity Microsoft sees in Skype.  The company will no doubt move to integrate the calling technology into its mobile operating system (Windows 7), its xBox game console, its Bing browser…There are definitely interesting things that can be done with the combined companies. But $8.5 billion?  I can’t help but be reminded of when Microsoft offered $48b for Yahoo! (Nasdaq:YHOO) a few years ago.  That deal eventually fell through (much to the relief of Microsoft shareholders)…and today Yahoo! is worth less than half that amount.  Is Microsoft, in its desperation to establish a foothold in the rapidly changing communications marketplace, over paying for an unprofitable, primarily free service provider? I guess time will tell…

AuthorRichelle Elberg | CommentPost a Comment |
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Monday
May092011
DateMonday, May 9, 2011 at 4:52PM

West Corporation Continues Buying Spree

Smoothstone IP Communications Latest in String of Deals

On April 20, 2011, voice and data solutions provider West Corporation announced its subsidiary, Intercall, has entered into an agreement to acquire cloud-based unified communications provider Smoothstone IP Communications for approximately $120m. The deal is expected to close in the second quarter of 2011.

Louisville, Ky.-based Smoothstone is a provider of cloud based communications for the enterprise, including multi-protocol label switching (MPLS) based application network management, enterprise voice, unified threat management, advanced contact center solutions, unified messaging and collaboration tools, all delivered as a unified suite of cloud-based applications. Smoothstone provides service in 42 states and the District of Columbia; however, the company does not provide service in any of the operating territories of West Corp.’s incumbent LEC affiliates.

Cloud computing is all the rage lately, and companies like Omaha, Neb.-based West Corp. are working hard to position themselves to capture as much cloud based business as possible.  West Corp., through its subsidiaries, provides a range of communications and network infrastructure solutions, including customer contact and conferencing services.  West Corp.’s subsidiaries include conferencing and collaboration service provider InterCall, e911 provider Intrado, hosted and managed automated customer contact solutions provider West Interactive, systems integration and consultation provider SKT Business Communication Solutions, B2B inside sales solutions provider West Business Services, direct response solutions provider West Direct, and receivables management solutions provider West Asset Management.

Over the last year and a half, the company and its subsidiaries have pursued growth through acquisition.  Not including Smoothstone, West Corp. has completed eight acquisitions totaling more than $125m related to cloud computing since December 2009.  Rather than develop products and services internally, West Corp. is clearly on the hunt for complimentary offerings.  For instance, West Corp. acquired virtual events and business environments provider Unisfair on March 1, 2011, which should fit well with the web event (a.k.a. webcast) services it picked up with its Stream57 acquisition in December 2009. Each of these deals adds a specific product or service that, when combined with the other service offerings, creates a comprehensive collection of services.

Despite the recent buying spree, West Corp. still has money in the bank- as of March 31, 2011 the company reported approximately $100m in cash and equivalents. West Corp.’s majority owner is Thomas H. Lee (55-60%); other owners include the Quadrangle Group Funds, whose current investments include Hargray Communications Group, Ntelos and Cequel Communications d/b/a Suddenlink; and Gary L. West and Mary E. West.

AuthorMatt Lydon | CommentPost a Comment |
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