INVESTORS LIBERATE TELCORDIA AFTER POSITIVE DUE DILIGENCE

To some people, Telcordia Technologies is an enigma, halfway in the legacy world and halfway into the next generation. After extensive due diligence, private equity firms Warburg Pincus and Providence Equity Partners believe they have the company figured out, which is why they recently invested $1.35 billion in its future.

The all-cash acquisition, expected to close within 60 days, keeps Telcordia and its management team intact. The new ownership will give Telcordia an independence it hasn’t had in its 20-year history--13 years as the RBOC-owned Bellcore and seven years as a subsidiary of SAIC.

“It’s almost a perfect time to celebrate our past but also start thinking about the next 20 years,” said Telcordia CEO Matt Desch.

The combination of Telcordia’s history and its potential for the future piqued early interest from the two equity firms, which have often worked together but have not jointly consummated a deal.

“Providence is the largest firm focusing on telecom and media, and we have invested more money in software than just about anyone, so this was a natural for us to work together,” said Larry Bettino, managing director at Warburg Pincus.

IDC analyst Elisabeth Rainge said that while there are no sure things for investors, this comes close.

“Telcordia is so well established and has so much going for it,” she said. “The rejuvenation of the company is already so clearly under way that the playbook is half-written. Now they just have to play the game,” she said.

Warburg Pincus has invested in software properties like Avaya, BEA, NeuStar and SS8 Networks and has raised nine equity funds worth $13.8 billion since 1980. Providence has more than $5 billion in equity investments in several operator companies, including Allstream, CellularOne, Eircom and Western Wireless.

“[Warburg and Providence] understood our vision better than anybody, and they have the most potential to help us achieve our potential,” Desch said. “I don’t think I am taking anything away from anyone else by saying I am pleased it turned out to be [them].

Bettino said that this is a long-term investment.

“We are traditionally long-term holders of our investments. We are company builders, and our investment in Telcordia is not to milk it but to grow it and build it,” he said.

“They have agreed to reinvest in the company and go after some consolidation over time,” Desch said “Nothing specific right now, but we will have the ability to buy now.”

The firms’ investment also signals their confidence in the market overall. Carriers, Bettino said, are beginning to spend again, especially in areas that will help them shrink costs such as consolidation and automation.

“We think Telcordia is the best-positioned company to take advantage of that opportunity,” Bettino said.

That idea is reinforced, or perhaps planted, by the major carriers, which according to Bettino all said that Telcordia is in pole position to take a leadership role in helping them transition to next-generation services.

“We did our due diligence, and to a man, the carriers all said they have tremendous respect for Telcordia’s capability and understanding of their environment and that they were looking for someone to step up and bridge the gap between where they are now and where they need to go,” Bettino said.

Where once carriers said they absolutely didn’t want to involve Telcordia in their major new initiatives, Telcordia is once again, or still, at the top of the carriers’ lists, Rainge said.

Although Telcordia will be an independent entity owned by a firm that says it invests in management teams and expects them to execute, in this case on a strategy that they already agree with, there will no doubt still be some change at Telcordia.

“We have been changing so much over the last couple of years that this only allows us to continue changing even faster,” Desch said. “It’s not a matter of what’s different, but what can continue to be different.”