Acme Packet announced its intent to acquire Covergence, the virtual SBC company for $22.8 million, mostly in stock. Covergence adds its low-end small office type SBC offering to Acme's well-developed high end capabilities to extend its offerings to new classes of customers that could have only been addressed as a hosted offering. Not that hosted is bad or anything, but it has limited appeal to some segments of the marketplace that may not want the burden of a monthly bill.
There had been three rounds of funding for Covergence – $6 million in 2004, $10 million in 2005 and $15 million in 2006 – and it would seem that there wouldn't be another one. So, in exchange for 22.6/420 = 5% of Acme Packet, the VC investors in Covergence have produced a liquidity event that can still pay off handsomely, as Acme continues to demonstrate market leadership and gain share in the SBC market.
Here's the Brockmann & Company evaluation of the deal.
Strategic Fit [5/5].
The biggest reason M&A fail is because the acquirer paid too much. Investors are getting $0.74 per dollar invested, which is off their usual expectation, but not bad considering what an equivalent investment in General Motors or Bank of America might have lost in the same period. And, with the stock portion of the transaction the investors can continue to hold Acme as it grows (the stock was $3.20 in November 2008) and is now more than double that.
Even still, this is a deal for complementary technology and complementary channel to market so Acme doesn't have to try to develop a low-cost virtual platform – Covergence is the leader in virtual SBCs.
Timing [5/5].
Recessions are extraordinary times for the strong to get stronger.
Customer Demand [4/5].
No doubt, Acme's carrier customers have been asking about how to deliver low volume, low cost services to enterprise branch offices and even small business. The Covergence offer enables a more flexible offering with less engineering sophistication – just what the SMB wants and needs.
Potential [5/5].
Of course, purchasing a competitor can mean culture clashes and executive squabbles. In reading the press releases, I don't think these two New England companies are going to be like that. Acme is working hard to retain the engineering and leadership teams and it sounds like they plan to operate the business as a separate entity.
