VeriSign's LightSurf purchase good step for interoperability

LightSurf may be best known as the platform behind Sprint's and other carriers' picture messaging and video messaging services, but by acquiring the company for $270 million in stock, VeriSign positioned itself as a leader in multimedia messaging interoperability.

LightSurf, in turn, will become a global player through VeriSign's international reach. Although LightSurf does some business with Telecom New Zealand, mm02 in Germany and Iusacell in Mexico, the company's largest customers and main focus are in North America. Customers include Sprint, Bell Mobility, Kodak, Rogers Wireless, Microcell and Qwest Communications.

“We believe LightSurf's current success is derived from its ability to provide a complete end-to-end offering for wireless multimedia messaging and interoperability,” said Stratton Sclavos, chairman and CEO of VeriSign. “So the acquisition of LightSurf is a natural extension of our intelligent communications commerce and content strategy.”

It's also an extension of VeriSign's acquisition strategy. VeriSign acquired Berlin-based content mediation provider Jamba last May for roughly the same price as LightSurf, although 60% of the deal was in cash.

“[Buying] Jamba was a smart move,” said Andrew Seybold, president of consultancy Outlook 4Mobility. “It showed that VeriSign understood that in addition to what they were already doing, they had to move into the content area. These two acquisitions have them pretty well-positioned.”

The deal is expected to close in the first quarter. VeriSign expects the acquisition to generate at least $30 million in incremental revenues for the remainder of 2005, to be neutral to 2005 earnings per share and to be modestly accretive to 2006 earnings per share.

VeriSign will retain all 250 full-time LightSurf employees in Santa Cruz, Calif., and Bangalore, India. Although no official role was defined for LightSurf's chairman and CEO Philippe Kahn, he is expected to stay on to run LightSurf's operations.

LightSurf has one of the leading multimedia messaging service (MMS) and interoperability solutions for the wireless market. The LightSurf 6 Open Standards MMS Platform enables mobile subscribers to exchange pictures, video and other forms of multimedia content. Its Global Exchange for MMS solution is a hosted and managed service for MMS interoperability.

LightSurf had been on the path toward an IPO, but after being introduced to VeriSign, Kahn said, “The synergism became compelling, and it became clear we could do things together very well.”

However, it's not as if the companies were strangers.

“In some ways they were competitors,” Seybold said. “I think when VeriSign saw how far ahead LightSurf was, they decided it was better to buy than build.”

Seybold also said that LightSurf's biggest problem was not its technology but its size and ability to get in front of Tier 1 providers.

Kahn agreed. He said his company had designs on expanding internationally but that such a move required infrastructure LightSurf didn't have.

“That's part of what we wanted to do with the proceeds of the IPO. [But] VeriSign already has that infrastructure built around the world,” he said.

January has been an acquisition-filled month so far, featuring the VeriSign/LightSurf deal, Alltel's purchase of Western Wireless and several other small vendor consolidations. Redwood City, Calif.-based mobile software developer Openwave Systems announced its acquisition of Cilys, a privately held wireless software infrastructure vendor. Also, mobile data managed services solutions provider End2End announced its acquisition of messaging service provider MIGway.

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