India’s Subex buys North American Syndesis

Subex Azure, the revenue management provider from Bangalore, India, which bought British revenue assurance company Azure in April for $140 million, extended its reach this week by agreeing to acquire Canadian OSS provider Syndesis for $164.5 million.

Over the last year, Syndesis watched as other OSS companies in its revenue range such as Cramer and MetaSolv were acquired by larger companies. While Subex Azure is not as large as Amdocs and Oracle, the other two acquiring companies respectively, at approximately $60 million in annual revenue, the deal will help them both better compete on the world stage.

“We aren’t much concerned with the competitive landscape. We have always competed with large companies,” said Subash Menon, chairman, managing director and CEO of Subex Azure. “We will be careful and strategic how we go about it but we have plenty of ammunition with which to fight these wars.”

Upon close of the all-cash transaction by the end of March, Syndesis will become one of three strategic business units of Subex Azure Limited. The SBUs will be called Revenue Maximization SolutionsFulfillment & Assurance Solutions and BT Business SBU. Syndesis will comprise the fulfillment and assurance fulfillment business unit.

The current Subex Azure business, excluding business from British Telecom, will form one of the other two SBUs while the current Subex Azure business from British Telecom will form the third. These SBUs will operate as independent revenue centers, each focused on delivering on its strategic plan and each leveraging its independent resources of account managers, domain experts and support specialists for superior product delivery and customer satisfaction.

Management of the combined company will be as follows: Founder Subash Menon will remain chairman and CEO. Reporting to him will be Sudeesh Yezhuvath, chief operating officer. And reporting to Yezhuvath will be Vinod Kumar, head of the Revenue Maximization Solutions SBU; John Lochow, CEO of Syndesis will be head of the Fulfillment & Assurance Solutions SBU and Paul Skillen will head the BT Business SBU.

The market addressed by the combined companies’ fraud and revenue assurance, interconnection service assurance and service fulfillment solutions was $2.5 billion in 2006 and according to analyst firm OSS Observer is expected to grow to $4.5 billion by 2010.

Subex Azure claims a 29% market share of the $216 million global fraud and revenue assurance solution market. Syndesis claims a second-place ranking in global service activation. The companies have six common customer including Telstra and Telecom Italia.

“We believe this makes significant strategic sense,” Menon said. “Between the two of us, we have a fairly wide set of solutions, a huge portfolio and we would end up serving 32 of the world’s 50 largest telecom operators. That’s a significant presence. It will make us a very strong and key global OSS vendor, which has been our long-term objective.

It obviously also makes sense to Syndesis. Mark Fowlie, executive vice president of sales and marketing said that having demonstrated its ability to solve the automated fulfillment problems at some of the hardest environments in the world, “it was time for us to continue to leverage that to grow quicker and expand our scope, reach and channels. It was important for us to re-capitalize the business.”

They got a good start. Larry Goldman, [] at OSS Observer, said that at almost four times annual revenue, the price Syndesis commanded was on the high side and significantly higher than the multiple Oracle paid for MetaSolv.

“This is good for Syndesis in that they get a more global sales and support presence and access to Tier-2 and mobile communications service providers,” Goldman said.

He added that clearly there is a lot of M&A activity in the software segment and companies are getting bigger. “Subex Azure is at that awkward $60 million in revenue point in a single segment--revenue assurance and fraud—and that can be hard to deal with. This gives them a position in a different growing segment which should help them a lot,” Goldman said.

Fowlie said Syndesis could have kept raising capital on its own, but bringing two strong growth companies together with their diversified revenue streams gives them a strong story to take to the capital market.

“It puts us on stronger footing to go after some compelling opportunity where we are highly differentiated in the market,” Fowlie said.