EXCLUSIVE: Telcordia acquires Granite Systems

Telcordia Technologies announced today the acquisition of inventory provider Granite Systems. With the deal, Telcordia hits on three of its key initiatives: wireless market penetration, an expanded international footprint and the addition of an inherently open convergent solution to its product portfolio.

How much Granite Systems cost Telcordia is unclear. Both companies are private and the financial arrangements of the deal, which closed shortly after midnight on Saturday, were not disclosed. However, “It wasn’t cheap,” said Matt Desch, CEO of Telcordia.

In addition to Granite recently achieving its first two consecutive profitable quarters, the acquisition also provides Telcordia with new or expanded customer contracts with SBC, Verizon Wireless, AT&T Wireless, Cingular Wireless, T-Mobile U.S. and Bell Mobility. Outside of North America, Granite brings the same with Telecom Italia, Matav, Colt Telecom, Saudi Telecom, Telefonica Empresas and lusacell in Latin America and more.

Granite will become a new division within Telcordia. The Granite Systems division will remain in Manchester, New Hampshire. “It will be a separate division because I didn’t want to integrate at too low a level,” Desch said. “I am really impressed with the people at Granite and their expertise, their entrepreneurship and the speed at which they move.”

Granite president and CEO Jay Borden, who founded the company in 1993, will run the division and report to Desch. Telcordia will move its activation products under the new division along with approximately 50 to 75 people who support those products.

“Our activator product will be more successfully sold as a Granite system than as a standalone product,” Desch said.  

Granite refers to its inventory-based solutions, known as X_ng, as service resource management (SRM.) X_ng manages both physical and logical configurations and services and serves 40% of the wireless market, according to Granite.

Telcordia and Granite have worked together on several projects, including a large implementation last year with Telecom Italia. “You can acquire a company without having worked with them, but it’s a whole lot better if you walk together first and become friends before you get married,” Desch said.

While Telcordia has its own inventory solutions, Desch said a more flexible and powerful platform for future services was needed and that Granite had it. “Their J2EE-based multi-tier architecture is where everybody wants to get to,” he said.

Granite’s advanced architecture and success in the marketplace brought the company close to a third round of financing, which Telcordia preempted.

“The thing I covet about companies that started in the venture route is that they configured themselves to be very efficient from day one,” Desch said. “In our history, we created some of the most powerful products in the industry, but they required perhaps more effort on our behalf to get them there. Our Elementive approach is to open our interfaces and make them configurable, but these guys did that since day one.”

While Granite may have been efficient, it was in danger of spreading itself too thin with a lot of Tier 1 customers, said Scott Donahue, program manager for OSS competitive strategies at Stratecast Partners. “Although Granite has done well, Telcordia is a less risky vendor for service providers.”

Donahue also said that while the OSS companies generally command one to 1.5 times revenue in an acquisition, Granite might get more. “Inventory is really important to getting things right. And things like Sarbanes-Oxley make it even more important. So I would bet inventory companies may go for up to three times revenue, maybe four.”

Given Granite’s (unconfirmed) revenue, Donahue estimated the target price of the acquisition between $120 million and $200 million.

Donahue wrote a report that was issued two weeks ago in anticipation of OSS consolidation and said the second quarter of 2004 would mark the beginning of increased OSS/BSS merger and acquisition activity, particularly in inventory management. He said Telcordia would benefit from the acquisition of Granite in particular because it would provide a platform for Telcordia to upgrade its current TIRKS customers, which Granite proved it could do on a smaller scale in the Telecom Italia implementation.

Desch said it will be important to his customers to see that Telcordia is investing. “They will be encouraged that we are putting money into the marketplace,” Desch said. “I want to be the most valued supplier in the industry and the more we invest, the better chance we have to do that.”

The two most visible faces at Granite, CEO Jay Borden and chief marketing officer Mark Mortensen, will be split up. Borden will remain at the helm of the Granite division, while Mortensen will be brought into the broader Telcordia domain to help promote its Elementive product line.

“We are doing some cross-fertilization,” Desch said. “Mark Mortensen will work across the whole Elementive portfolio to make sure we get off to a fast start.”

As for Borden? “I am happy right now to have this bigger playground to play in. There are all sorts of neat, complementary things we can do,” Borden said. “There are Telcordia products we can bring into our product line and there are professional services capabilities we can leverage to go after much more of the business that we would have gone after in the past.”

Borden said that Telcordia has a depth of OSS knowledge and a breadth of OSS application capabilities that is absolutely unique in the world. “There are players that sell as much in raw dollars in communication software, but those are all billing people and they don’t have expertise in OSS.”

What his company adds is “the first J2EE service fulfillment platform to make it into the big-time and to hit Tier 1 production-volume provisioning,” Borden said.

Some analysts suggest much consolidation is still required to right-size the OSS space. However, Borden doesn’t see a feeding frenzy ahead. “I don’t think a massive consolidation or industry roll up is about to happen and that this is the first domino to fall. I don’t believe large scale software rollups in this space work,” he said. “There is too much work technologically and organizationally to make just one matchup work. If you were to try to construct a company out of four or five or 10 [acquisitions], as some people have, you wind up with something that is very difficult operationally to make work.”

Telcordia, however, is not through yet. Desch has tapped into the resources of parent company SAIC and said he is open to certain strategic acquisitions.