Thoughts on Veraz's acquisition by Dialogic

As pointed out in my recent report, out of the mid tier VoIP vendors, Veraz and Sonus face the hardest task ahead as independent companies. Among the mid tier vendors, there are three distinct categories. One is those vendors that have best of the breed but only a specific product solution. They sell their products through their OEM partners and that represents their main source of revenue. These include Acme Packet, Broadsoft, and Genband (Genband without Nortel assets). This category does not compete so much with the incumbent vendors.
 
The second category of mid tier vendors compete with incumbent vendors in areas including softswitches, with a small difference in that they have so far focused on specific sub-segments of telecom service provider market. These include companies like Cedarpoint and Metaswitch. Cedarpoint focuses on cable VoIP and Metaswitch has so far dealt with the IOC segment in North America. Both are market leaders in their sub-segments.
 
Then there is a third category of mid-tier softswitch vendors who compete with incumbent vendors in the mainstream market which includes all tiers of service providers. These are companies like Sonus and Veraz. As independent companies, this category will most probably have the hardest time I believe. However since the addressable market for them is huge, Sonus and Veraz may continue to do some amount of business going forward. Ideally speaking this category of companies should look for merger with a bigger company.
 
That is what Veraz seems to have done. Veraz has a revenue rate of around $90 million while Dialogic is at around $160 million per year rate. Combined entity will have 60 percent business coming from service provider segment (which implies that Dialogic is generating revenues of around $60 million per year from service providers, since all Veraz revenues are from service provider segment).
 
The focus of the combined entity will be wireless providers. Dialogic has had some success selling video application platforms to ASPs and operators in the mobile space. Veraz on the other hand sells a sizable chunk of media gateway ports to wireless operators. Although there is no synergy between the two products, there could be synergies cross selling the two products. The Veraz product that comes closest to Dialogic’s mobile video solution is the mobile backhaul solution What Veraz has in mind is some centralized control of bandwidth management down the line. That, according to the company, helps improve user experience with mobile video applications.
 
There is however no escaping the fact that this looks like a safer public route for Dialogic. IPO market is tough and it might prove risky going alone. This will be the second time that Dialogic is publicly listed. The company was previously a listed company before it was acquired by Intel. After spinning off a few years later, it acquired a few assets including Cantata (which was a rehashed name for Brooktrout, Snowshore, and Excel Switching). Veraz itself began life as IPVerse, renaming itself Nexverse after merger with a division of ECI Telecom. It later renamed itself Veraz Networks. So you are looking at around a half a dozen companies and their assets being managed by the combined entity going forward.