Paul Bowen on Ericsson/Redback

In the wake of yesterday’s Ericsson/Redback news, I had the chance to ask Paul Bowen for his take on the news. Bowen is president of Bowen Advisors, a strategic M&A consulting firm and a well-known boutique banking brand for emerging and established communications technology companies.

 

PB: Ericsson has long threatened to make bigger waves in U.S. Telco market. While they certainly paid a high price from my perspective, the notion of buying Redback, a $70M per quarter revenue company (as of 9/30/06 quarter), to fend off Cisco in the IPTV for Telco space, hardly qualifies as a big splash. If you believe as I do that Tellabs, Juniper, and Redback all spent 2006 trying to sell to Ericsson — the story here is the one that got done and the two that did not.

 

 

PB: In the land of >$10B revenue companies — Cisco, Ericsson, Alcatel-Lucent, Nokia-Siemens all qualify — adding $280M of revenues (Redback’s run rate) must imply that the SmartEdge is strategic. By comparison, Juniper did $574M in revenue last quarter ($2.3B run rate) and Tellabs did $523M in revenue last quarter ($2.1B run rate). The message is Ericsson, seeking a bigger footprint, bought the smaller footprint of the three — arguably 80% to 85% smaller. And they paid 7.5x for those revenues... kind of makes you wonder what was wrong with the bigger and less expensive companies.

 

 

PB: It is also a bit ironic that in the week that we have seen the most uncertainty around ATT & BellSouth (Bellsouth is Redback’s biggest RBOC customer/future story), this deal gets announced.

 

Generally, this deal is good for Redback as they sold at a recent-term high; decent for Ericsson as they can be a bigger player with next-gen technology at RBOCs and better leverage their global ambitions; bad for Juniper — but good for industry as Juniper now likely stays independent longer and grows through acquisition.