Oct 31, 2002 12:00 PM,

NexVerse merges with ECI subsidiary

Dan O’Shea

Softswitch vendor NexVerse Networks and media gateway provider ECI-NGTS, a subsidiary of Israel’s ECI Telecom, have signed a definitive agreement to merge into a new entity called Chorale Networks.

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The terms of the deal, expected to close in the fourth quarter this year, call for an exchange of shares between NexVerse and ECI, along with new investments by both firms. ECI will invest $10 million, and NexVerse's current investors will invest $14 million in Chorale. The parties also garnered an additional amount of up to about $6 million from new investors.

In addition to the match-up of NexVerse’s ControlSwitch platform and ECI-NGTS’ media gateway, which will remain separate product lines, newly formed Chorale also will be selling ECI’s established digital compression multiplexing equipment, which is “a very profitable business,” said Amit Chawla, CEO of NexVerse. He will be executive vice president of the new company, while Tal Simchony, CEO of ECI-NGTS, will head up Chorale.

News of the deal comes amid reports that Lucent Technologies is unloading several product lines, including some softswitch products, as well as further anticipation of a shake-up in the softswitch market.

Chawla said San Jose, Calif.-based NexVerse needed a bigger partner to win contracts from carrier customers that were concerned about dealing with start-ups, as well as international business. “There has been a start-up backlash in the industry. Clients want to know you’re company that will be around for the long run,” he said. “For us to go it alone in the international arena would have been difficult.”

Chorale Networks will be able to use the “an ECI Telecom company” tag, which Chawla thinks will help its competitive chances. However, he doesn’t expect NexVerse’s nimble start-up culture to be overrun by a huge international corporate parent. Though ECI will have the largest single-equity piece of Chorale at 49.8%, it will have neither the majority position nor board control. Also, its position likely will be somewhat diluted with new investors coming.

“We’re see a lot of thinning of the market right now, but there is still a market opportunity there,” said Chawla. “It will be a game where the last man standing wins.”