Syniverse CEO: VeriSign acquisition all about scale

In another divesture in what has been a long process of shedding its telecom businesses, VeriSign (NASDAQ: VRSN) announced today it is selling its messaging business to Syniverse Technologies (NYSE:SVR). The $175-million cash deal will be a boon to Syniverse as it looks to expand into global markets and industry verticals as well as attract new market entrants. More than anything, Syniverse president and Chief Executive Officer Tony Holcombe said the mobile messaging market, defined by constantly falling prices, is about scale – and VeriSign will help Syniverse scale its global business.

“Prices always fall in this business, but you have to bring more value-added services and benefits to operators here…One of the clear global drivers we see is the expansion and explosion of messaging in the marketplace,” Holcombe said. “If you think about the smart device phenomenon and now a variety of announcements about netbooks and a great deal of emerging markets moving to wireless devices as a way to access Internet services – messaging becomes a critical part of that.”

Syniverse has been contemplating an acquisition of VeriSign’s business since 2007, when VeriSign decided to leave the telecom business. At the time, Syniverse acquired Business Services Group’s (BSG) wireless business to expand its international footprint. Holcombe said Syniverse’s market strategy has always been to look for potential competitors that want to exit the messaging space as well as look for new products and services. With regard to the timing, he said Syniverse had to work at the pace of VeriSign’s divestiture process. Syniverse had to determine which of VeriSign’s assets it was interested in and then go through negotiation.

“It did take a long time, but the end result is we are very happy with the assets we purchased, the people we will be gaining and, frankly, the price of the purchase,” Holcombe said.

Syniverse acts an intermediary between operators to resolve any roaming, clearing or transaction-oriented business issues and currently works with more than 650 communications companies, including AT&T and Verizon, spanning 120 countries. The company is looking to build its global presence as well as target new mobile entrants, including cable operators, Internet service providers, VoIP and application service providers. Its Syniverse Next platform enables subscribers to communicate across networks, protocols and message types from any mobile device.

The acquisition combines NEXT with VeriSign’s operator and enterprise platforms, which include an inter-carrier gateway for SMS and MMS, PictureMail MMS platform, premium messaging gateway and mobile enterprise solutions that enable businesses to send time- and event-based messages or alerts via voice, text message or email. VeriSign delivered 135% more traffic in 2008 than the year prior, and the company was anticipating SMS volume growth to continue at 60 to 80% throughout this year. VeriSign’s messaging business had an annual run-rate of approximately $140 million over the past year, according to the company.

Syniverse will also gain 300 additional employees in the US and Asia Pacific. While VeriSign has traditionally focused on North America, more than 100 of its employees are based in India where Holcombe said Syniverse’s operator customers see significant opportunity.

“Particularly with the tier-one operator community, they are very interested in global enterprise solutions,” he said. “We think the combination of our services with Syniverse NEXT and VeriSign’s services for mobile enterprise solutions is clearly something we are excited about taking to those markets.”

Holcombe said he expects the transaction to close by this fall and anticipates the integration process will be less complicated than its previous lengthy acquisition of BSG. Holcombe anticipates all the business units to grow following the completion of the acquisition, but the two companies will treat each other as competitors until the transaction is approved and closed, he said.