Buyout binge

The company has grown through a series of acquisitions, the latest in a new space.

It's becoming a habit and a good one at that. The CEO and founder of the Bangalore-based Subex Azure, Subash Menon, has decided that there's just one way to grow "� by acquiring companies. In the last seven years, the Rs 182 crore telecom software product firm has bought out seven firms.

After snapping up the UK-based Azure for $140 million last July in a predominantly all-stock deal, Menon has upped the ante picking up Canadian telecom solutions provider Syndesis in all-cash deal for $164.5million. With this, Subex's addressable market grows five- fold to $2.5 billion.

Unlike most players in the technology space, Subex does not sell software services. Instead, it makes a suite of products that caters for crucial segments in the telecom vertical such as fraud management.

Telcos are known to lose about 3-5 per cent of their top line to such malpractices and so it's not surprising that the company has a marquee client list in Vodafone, Verizon, AT&T, Bharti and Airtel.

With Syndesis in its fold, Subex can now help telecom service providers to quickly and cost-effectively deliver next generation IP services, such as VoIP and IPTV, on a mobile phone. For example, British Telecom can now activate a subscriber's choice of value added-services, monitor the quality of service and also plug any revenue leakage.

As Subash Menon, CMD, says, "Telcos need to rejig their models to deliver next generation IP services such as VoIP and IPTV. They can be competitive only if they are operationally dexterous and reduce the time-to-market. Besides, they have to keep costs down." That's the logic for buying Syndesis, the second largest player, globally, for service activation solutions.

For existing Subex Azure customers, the acquisition means access to a host of new but field-proven telecom software solutions that help automate fulfilment processes. Telcos can now establish leaner, more efficient operations and actively manage operations costs.

Explains Menon, "We want to deliver solutions that help telecom operators become more competitive and efficient in an environment where the business is getting increasingly commoditised."

With Syndesis, Subex will be addressing a much bigger market: OSS Observer, an independent research firm, reports that in 2006, the total addressable market size for fraud and revenue assurance, interconnect, service assurance and service fulfilment solution segments was $2.5 billion.

It expects this to grow to $4.5 billion by 2010. Says Menon, "We already have a 29 per cent share of the $216 million global fraud and revenue assurance solution market. We're looking to replicate this success in other spaces."

The Syndesis acquisition, coming as it does within six months of the Azure buyout, is a sign of the company's aggression and is well appreciated by analysts. But while the company does not intend to leverage itself any further to fund this deal, it nonetheless means an outflow of cash, unlike in the case of Azure where 97 per cent of the consideration was paid for in stock.

Subex plans to raise up to $200 million through a GDR issue. With a combined (Azure and Subex) top line of Rs 385 crore for the trailing twelve months and a net profit of Rs 63 crore, the company is no longer as small as it was before it took over Azure. All the same, it's buying a firm for almost twice that value. Menon's not worried. He's pulled it off before, he'll do it again.

TAKEOVER TRAIL

Syndesis, Service Fulfillment and Assurance space, Jan 2007 ($165 million)

Azure Solutions, Revenue Assurance Company - June 2006 ($140 million)

Mantas Inc., Fraud Management business assets - March 2006 ($2 million)

Lightbridge Inc., Fraud Management business assets - October 2004 ($3 million)

Alcatel Fraud Management Group, Fraud Management business assets - October 2004 ($4 million)

Magardi Inc., Canada - May 2001 ($3 million)

IVth Generation Inc., USA - January 2000. ($7 million)