Telecommunications equipment company ECI Telecom (Nasdaq: ECIL) has agreed to buy Pittsburgh-based Laurel Networks for $88 million in cash.
Laurel Networks produces optical IP switching systems. ECI's announcement said, "Laurel`s products and technology will add edge routing and IP service capabilities to ECI's broadband, optical, and core routing portfolio, enabling ECI to enhance its systems functionally and to create complete multi-service IP solutions for service providers."
Laurel Networks was founded in 1999. It has received a total of $118 million in funding from, among others, NEA and Trinity Ventures, as well as from Ciena Corporation. Most of the funding was used for the research and development of its IP Multi-Service Edge Routers. Laurel has approximately 150 employees and $9 million in cash. Sales for the 12 months ended April 30, 2005, totaled $18 million. Among its key customers Laurel lists Level(3), Korea Telecom, and Dacom.
"Carriers' infrastructure and services are rapidly evolving to IP," said ECI Telecom president and CEO Doron Inbar. "By acquiring Laurel we add best-of-breed IP edge routing products, technology and expertise to our overall portfolio of IP solutions and strengthen ECI's position as a supplier of next-generation IP solutions. This acquisition is aligned with our strategic direction to enhance our ability to meet our customers' most demanding needs with innovative solutions as their next-generation multi-service networks evolve toward a single converged IP network."
"We are very excited to become part of the ECI family," said Laurel Networks CEO Don Pyle. "The Laurel team has originated the multi-service routing concept and demonstrated its advantages in flawless deployments at top tier carriers' networks. By coupling our IP edge routers with ECI's core routers, optical products, and broadband access, we can now create unmatched comprehensive solutions."
Upon closure of the deal, Laurel will become ECI's Data Networking Division.
Inbar said, "We could have bought companies with more revenue, but we decided not to dilute our earnings per share for longer than a year. All companies in the sector are losing money. Laurel Networks plans to become profitable within a year. Although the dilution is not minor at present, I'd say that isn’t very large either."
"Globes": Will you be able to provide more precise figures when you close the deal?
Inbar: "I assume that we'll provide detailed information on some of the costs when we close."
Inbar added that ECI had been under a cloud lately, but that it had dissipated with the acquisition of Laurel Networks. "The concerns related to two matters. One was the price of the acquisition, how much it would dilute our profits, and whether it would have a dramatic adverse effect on our results. The second factor that I think was burdening us was whether the strategy would turn us into a natural IP player. We didn’t have this capability before. We've also answered this question. We now have to manage the post-acquisition period well, and I'm sure we'll do it."
How can you be sure that the present acquisition won't resemble ECI's previous failed acquisitions?
"We were very careful. We devoted six months to strategic decisions relating to the synergy between the two companies - how to combine them in the best way. We have outside consultants and an in-house team, and I'd say that we've learned the lessons of the past very well."
Will ECI acquire more companies in the near future?
"We have all the components we need to provide solutions for our target customers. We don’t want to buy, although we might acquire smaller market segments here and there. On the strategic side, we've filled in our missing block of Lego."
That missing "block of Lego" is router technology that helps services providers switch from being only vendors of traditional voice and data communications, to becoming triple play video, data and voice networks.
Published by Globes [online], Israel business news - www.globes.co.il - on May 16, 2005