NICE Systems and Verint Systems: 1+1=3

Shmulik Shelach

Such a deal could result in a company with annual revenue of $2 billion and improved profitability due to synergy.

For both NICE Systems Ltd. (Nasdaq: NICE; TASE: NICE) and Verint Systems Inc. (Nasdaq: VRNT) acquisitions are not a new thing. Both large companies have a rich past in mergers and acquisitions and Verint has spent more than a billion dollars in recent years on such steps. The option of a merger between them has been on the agenda for a long time, at least a decade.

In 2002 they spoke about creating a large company in call centers. Today we are talking about data collation and interactive analysis systems within enterprises, and between organizations and external enterprises through video and voice recordings with a stress on security.

When Zeevi Bregman was appointed president and CEO at the end of 2009, there was speculation that the two companies would merge as he knew Verint from the inside. At least on a personal level, it would seem that the fact that Bregman and Verint CEO Dan Bodner know each other simplifies matters in the case of a deal but it does not prevent certain questions being raised. How would a NICE-Verint deal work out? Even if we are talking about an acquisition rather than a merger of equals, it is clear that organizational management will require a new examination of the various roles.

Will Bodner lose his job or be satisfied to head a division under Bregman? And perhaps the package includes Bodner becoming CEO of the new company while Bregman will move aside on the decision making chain. In any merger and acquisition the heart of the matter is what happens the day after. Both companies have proven that they have executives courageous enough to spend hundreds of millions of dollars on acquisitions. However, the success in integrating the asset acquired and leveraging it for the benefit of "customers, employees and shareholders" as the cliche goes, is another matter completely.

Mini-Comverse within NICE

Bregman has set up for himself a kind of mini-Comverse Technology Inc. (Nasdaq: CMVT) in NICE with a layer of management who worked there first. The acquisition of Verint will apparently complete the picture but transforming NICE into Comverse won't only bring positive results. An example of this is the managers that have been replaced, frustrated employees who have seen promotion pass them by, changes in the method of activities at the company in development and sales, and more. Acquiring a significant rival also means large scale layoffs.

Verint for its part is being traded today at multiples of 12 of its net profit, relatively low compared with other companies that provide business data analysis solutions. Revenue this year is expected to total $840 million. Performance is successful enough to cope with the $380 million debt contained in the balance sheet, and profitability is higher than NICE (gross profit of 68-69% at Verint compared with 65-66% at NICE).

The positive side contained in a potential partnership is that both companies are leaders in their fields with the potential to prove that 1 + 1 can equal free. Verint shareholders may receive a value that does not maximize the company's potential but such a deal could result in a company with annual revenue of $2 billion and improved profitability due to synergy. The new company would swiftly move into a certain segment alongside players like IBM, Oracle, EMC and HP. When it happens a company value of $1.5-2 billion each will soon become a distant memory.

Published by Globes [online], Israel business news - - on January 14, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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