Oracle dials into networking

With the purchase of Acme Packet Inc., global IT and software provider Oracle Corp. is looking to expand its presence among telecommunications operators. The deal reflects the growing interplay between IT and telecom, and the maneuvering by software and networking companies to target critical technology.

Oracle will pay $29.25 in cash per share, or $2.1 billion. Net of cash on Acme's books, the deal's value would be $1.7 billion.

Acme traded above the takeout price on Monday afternoon, Feb. 4, gaining $5.37, or more than 22%, to $29.30. It was as high as $29.67. Shares of competitor Sonus Networks Inc. jumped 40 cents, or more than 17%, to $2.68.

With IT and communications "becoming pretty much inseparable," Ovum plc consultant Dana Cooperson said companies dealing in either information or networking need to address the crossover.

Acme develops technology that underpins the security, service quality, regulatory compliance and other aspects of voice and video communications. The company's applications address problems that could occur as data crosses the boundary between a telecom's network and, for example, a corporation's systems or a public Wi-Fi network.

"Security is certainly a big piece of it," Cooperson said of the overall offering.

Quality of service is also critical, she added. Service providers, who have seen their value chain remade, are using technology to make communications as efficient as possible.

Northland Securities Inc. analyst Catharine Trebnick said it is not a surprise that Oracle came forward, rather than a traditional network equipment provider such as Cisco Systems Inc., which is Acme's main competitor in the market for corporations and other large enterprises.

"It was likely to be an IBM or Oracle or someone that was heavily in software and looking to increase their footprint in the carriers' mobile networks," she explained

Trebnick described Acme, which has about 900 employees, as a tuck-in acquisition or "a good hiring day" for Oracle, which has a staff of more than 115,000. Acme's offerings would be complementary to Oracle's billing and data base services that it provides to the telecoms' IT businesses.

In addition to Sonus, Acme's rivals in the telecom market include Genband Inc., which has backing from JPMorgan Chase & Co.'s One Equity Partners, Oak Investment Partners, Sevin Rosen Funds and Venrock.

Francisco Partners and Sequoia Capital portfolio company Metaswitch Networks Ltd. also serve telecoms.

In a Monday research note, Peter Goldmacher of Cowen & Co. put the deal at 5.7 times Acme's projected 2013 revenues of $300 million.

The deal could provide support to Oracle's "flagging service provider business," he wrote. About 70% of the target's revenues come from large telecoms such as Verizon Communications Inc., AT&T Inc. and Deutsche Telekom AG.

Oracle would also use its distribution muscle in the corporate market to push Acme's communications technology and services.

"We believe that the need for these solutions is partially driven by the preponderance of smart mobile devices, an increasingly mobile workforce and increased adoption of Cloud solutions that blur the line between the enterprise data centers and service providers," he wrote.

The companies expect to close the deal in the first half of 2013.