Last night, Amdocs (NYSE: DOX ) signed an agreement to acquire Clarify from Nortel Networks (NYSE: NT) for $200 million.
There has been no dearth of speculation about the real value of the deal and its necessity for Amdocs. The consensus was that Clarify, which Nortel bought for $2.1 billion two years ago, would be sold for $400 million. Ultimately, the price was halved, and Amdocs will post a one-time expenditure for the purchase in its fourth quarter 2001 financial report.
Giga Information Group analyst Alice Salpeter thinks the reason for the halving of the price is quite simple. “Amdocs discovered at the last minute that Nortel had laid off most of Clarify's IT personnel. Amdocs had assumed the campus would be self-sufficient for the time being and did not include additional IT staff into its budget estimates. This disclosure is not likely to cause a cancellation of the deal, since Amdocs seems primarily focused on Clarify’s install base of more the 100 telecoms and service providers," writes Salpeter. These include British Telecom (NYSE: BTY; LSE: BT.A), Global Crossing (NYSE: GX), Vodafone (NYSE; LSE: VOD) and NTT.
As for the acquisition itself, it has long been assumed that Nortel wanted to quit the cash guzzling CRM field. Clarify was a candidate for acquisition by a company with Amdocs's profile - a company that wanted to integrate Clarify's technology into its own. Amdocs is a single, giant entity that does not spin-off small subsidiaries for each of its fields of activity.
Salpeter writes, "Amdocs... [is] a pioneer that recognized billing is no longer a “silo” activity and that in the current marketplace billing must increasingly become integrated with customer care, CRM, and marketing, moving billing from the backroom of the organization to the organization’s front end. Amdocs has expanded its offerings throughout the years to the telecommunications service providers (SP) industry.”
Salpeter states that Amdocs is acquiring Clarify because, "Amdocs’ current CRM offering, has not proven a competitive match for enterprise CRM vendors, like Siebel Systems (Nasdaq: SEBL). At the same time, it should be noted that the capability that Amdocs is buying is essentially market share, rather than manpower, most of which is no longer present in the company. Clarify was a massive failure for Nortel. After acquiring the division for more than $2 billion, it is now forced to sell it for a tenth of that price – $200 million."
Amdocs yesterday expressed satisfaction with the deal, despite Nortel's attempt to put one over on the company. Amdocs CEO Avi Naor said,
"The acquisition of Clarify immediately expands our current offerings and market presence in communications CRM," said Avi Naor, president and chief executive officer of Amdocs Management Limited. "The acquisition represents an excellent opportunity for Amdocs, enabling us to immediately leverage the significant potential in the communications CRM market."
Naor's statement ignores, perhaps deliberately, the fact that Amdocs essentially purchased a company that has laid off most of its personnel. Naor says, "The acquisition of Clarify allows us to enhance our presence in the CRM field, thanks to Clarify's products, employees, and customer base."
Salpeter dispels some of Amdocs's optimism. She told "Globes", "Amdocs is acquiring a company that has lost most of its personnel, and that operates solely in the communications providers sector. Clarify is no great bargain for Amdocs, except for the access (it provides Amdocs) to a much wider customer base than is currently available to it. It should be noted that Amdocs has a CRM product that is having trouble competing against Siebel Systems, its main competitor in the field."
Salpeter adds, "Every contract Amdocs has lost to Siebel to date causes the company to worry that Siebel is grabbing its customers by presenting more comprehensive products to integrators. Clarify might not have been the best acquisition for Amdocs at this time. However, the company does have a working technology and a customer base of 100 customers, and we shouldn't forget the massive contraction of its price, even compared with the opening of the negotiations with Amdocs."
Goldman Sachs provides a different perspective on the deal. They assume that Clarify still has 600 employees after the lay-offs, who will join Amdocs's staff. 400 of the employees are in R&D, 120 in sales and 80 in marketing. Goldman Sachs expects Clarify to add $100 million and $0.01 earnings per share to Amdocs in 2002.
Goldman Sachs is quite pleased by the acquisition, but has not changed its profit forecast for Amdocs. They now expect Amdocs to have $1.84 billion in revenue and an EPS of $1.52. For its part, Amdocs published forecasts of $1.9 billion in revenue and an EPS of $1.52. Forecasts for the third quarter were also not revised, and stand at $415 million in revenue and an EPS of $0.34.
Naor tells Bloomberg: The acquisition will help Amdocs compete more effectively
Bloomberg interviewed Amdocs CEO Avi Naor following the acquisition of Clarify from Nortel Networks.
Bloomberg: Why did you acquire Clarify?
Naor: Amdocs develops products and provides services to the telecom industry. Our portfolio focuses on the billing and CRM fields, which constitute the core of customer services for communications companies. We currently have a presence in all geographical regions. The acquisition of a company like Clarify allows us to better serve our customers in all sectors. All communications companies are now dealing with the question of how to better serve their customers. CRM is an effective way for them to create a competitive advantage (in the competition) for customers' hearts."
But you have your own CRM solution.
"The CRM product we offer communications companies allows customers to offer better services to their customers, with better customer integration, so when one thinks about CRM, one thinks about the company's ability to create a relationship with its customers. If a customer calls a company, a comprehensive CRM system enables the customer to clarify details of his bill, and then offers more products to the customer. We focus on the interface between billing and CRM, so that when a customer calls, the nature of the dialogue with him can be checked, in order not to lose him through a misunderstanding."
How is Clarify's product different from what you have done until now?
"Clarify's CRM complements our products, first of all from a performance and customer perspective. Clarify brings to the table an extensive and important customer base, including British Telecom and NTT, which will contribute to expanding our market share. As for personnel, they bring a great deal of experience in the customer service field. In the area of performance, Clarify is very strong in transferring calls to the correct function in an enterprise, which definitely complements what our products offer in this area."
Why did it take you so long to close the deal?
"It took time for both parties to feel comfortable with the deal. I can assure you that both Amdocs and Nortel are satisfied with the agreement.”
The communications market is in crisis and Nortel is striving to cut costs. Did you exploit the situation to get a better price?
"We found out that Nortel is a very reasonable partner to negotiate with. Both companies were reasonable about the details of the agreement. The terms are naturally important for Amdocs, but what is brought to the table is more important. We operate in an environment in which CRM is a crucial element of our products as we battle to keep customers. Amdocs can now compete to try to "steal" new customers. The acquisition of Clarify improves our positioning."
Published by Israel's Business Arena on 4 October 2001