Dialogic and Veraz Merge

Dialogic and Veraz Networks just announced their intent to merge and the news has many implications for the numerous markets the companies play in. Nick Jensen, CEO of Dialogic had this to say about the merger, “By combining Dialogic’s proven expertise in application enablement for voice and video with Veraz’s leadership in voice, data, session control, security, and transport, we will be creating a company with innovative products that will enable our customers to unleash the profit of video, voice and data for 3G/4G networks.”

Dialogic has been a voracious company having rolled up much of the communications development market over the years. By integrating once fierce competitors NMS and Brooktrout/Cantata the company has taken on more and more share of market. With this merger, the new company to be named Dialogic will have revenues greater than $250M annually and about 10-15% of this revenue should flow to EBITDA. Remember the bottom line will be calculated after interest payments which are substantial after the spree of acquisitions the company has been on in the past years.
Also expect the new company to be publically traded on the NASDAQ.
There are a few takeaways from this news worth mentioning. The first is that obviously Dialogic sees more opportunities in the carrier space as a result of this news. Jim Machi the Senior Vice President of Marketing at the company explained that while this is true, the enterprise is still a significant part of the company’s business and important to them.
Regarding the benefits for customers he had this to say via an e-mail interview: “Dialogic will have enhanced scale and even greater financial strength but mostly we see more of an end-to-end play in the service provider market since we enable the value added services to the consumer and will have a portfolio of products to take the media stream through the network, such as gateways, bandwidth optimization products and softswitches. This should also help as video value added services become more widely deployed.”
I also asked about the potential for the merger to create a pull-through situation where the carriers using products from Veraz Networks will buy more products from Dialogic’s other sides of the house. Jim feels this is the case. My final question to Jim was – will we see more mergers. Machi told me that we should wait for this one to close first. Everyone should know by now that patience is not something I was blessed with an abundance of.
I do agree the benefits of this merger for Veraz Networks customers and shareholders is scale and the ability to rely on even more products to fill their revenue streams. For Dialogic, employees and investors now have shares of stock they can trade on public markets while the benefit for customers are a larger company with more revenue which means even less concerns about the company’s finances. For that matter, now that the new company is publically traded the finances will be out in the open. Another benefit for Dialogic is the move upmarket. As processors have gotten more powerful, much of the old DSP-resource board compute power which came at a massive price premium became commoditized as the CPU could do more and more of the work. In addition, IP changed the dynamics of telephony as voice now became an application on a packet network.
One might surmise that the Cantata acquisition which brought the company switching systems via the Excel product line and a media servers from the SnowShore product line taught Dialogic about the increased value as they moved up the developer chain to sell solutions. We can equate this move as similar to the struggle carriers have to become more than companies selling dumb pipes.
AudioCodes knew this was a logical way to go as well and this is why they went upmarket and purchased Netrake to get in the SBC space and Nuera to get into the media gateway space. As AudioCodes learned, as you move upmarket, the branding and marketing becomes more challenging as you are selling bigger ticket items and there needs to be customer reinforcement to ensure carriers are comfortable betting their company and careers on these large-scale products.
The point is the Veraz product line is a different business than where Dialogic started out and there could be challenges with this move. The counter argument is that Dialogic has purchased some high-end carrier assets in the past and the transition has been fairly smooth. Moreover Dialogic seems to integrate the companies it buys well and you don’t hear many negative comments about the them – except perhaps its legal department which according to some is apparently very thorough. Then again, I have never heard compliments about any company’s legal team – and don’t expect to.
All kidding aside, I think this move makes great sense and is good for all involved and there is precedent for similar acquisitions/mergers which have gone well. Nick is one of the top managers in the space and as Dialogic begins a new chapter in its life, the company has become large enough and has enough intellectual property that it itself has become an attractive acquisition target. Stay tuned for further developments.

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