Radvision was left with no other way out

Ron Steinblatt

Cisco's abandonment meant that a sale to a US giant was the only possible way forward.

At first sight, the Radvision Ltd. (Nasdaq: RVSN; TASE: RVSN) deal looks like another successful exit by an Israeli technology company, sold to a US communications solutions giant for quarter of a billion dollars. But make no mistake: the sale of Radvision is a matter of immediate necessity, because the strategy that the company's heads chairman Zohar Zisapel and CEO Boaz Raviv outlined has been an utter failure.

In the past two years, ever since Cisco ceased to be an important customer, Radvision has been driving up a cul-de-sac. Despite that, the Zisapel brothers managed to obtain a very decent price for it. Everyone can do the sums for themselves. Last year, when orders from Cisco fell substantially, Radvision's revenue fell by 18%, its loss rose seven-fold to $23.4 million, and it burned the unbelievable amount of $25.8 million cash. The opening of 2012 also does not look promising, and the company expects to make a loss double that of the corresponding period in 2011, reaching $7.8 million.

In this difficult situation, the Zisapels managed to sell Radvision's know-how and developments for $140 million (after discounting the company's cash, which amounts to $90 million). That is no small achievement, especially considering that the two refused to sell Radvision in the past for a higher price. However, they also bear the responsibility for the cul-de-sac in which Radvision finds itself, making it incapable of reaching profitability as an independent company.

Radvision twice failed to read the market in which it operated. The first time was in October 2009, when Cisco announced the acquisition of Radvision's rival Tandberg of Norway. Until that acquisition, Cisco was Radvision's main customer, accounting for 40% of its revenue. Radvision's assessment had been that if Cisco were to decide to buy a company in its field, it would be Radvision itself.

The second failure was the response to that move. Radvision decided to buy Italian company Aethra from receivership at a low price, and entered into a new field of end-user equipment, switching to a model of distribution channels. This is a field in which margins are low, and Radvision had to raise its operating expenditure substantially to support the switch to this model.

However, not only did revenue not grow, it actually shrank, and Radvision did not succeed in filling the large vacuum left by Cisco in its US activity. Hence the big loss in 2011. In the circumstances, the Zisapels realized that a getting back on a future profitability track would be hard without a considerable cut in expenses, and they made the correct decision to sell the company to a US giant with widespread distribution channels of its own.

Published by Globes [online], Israel business news - www.globes-online.com - on March 15, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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