Saturday, June 3, 2006

Acme Packet - IPO On The Way

I've been expressing concern about how the Vonage IPO will impact the appetite for others who have been waiting for the right time to make their move. One could argue that Vonage's poor showing would spell doom and gloom, and scare all the bankers away from VoIP. Or one could say the bankers are smarter than you think, and are not letting one IPO based on a broken business model - albeit a BIG IPO for this space - cloud their judgment about smaller gems that are right at their feet.

Acme Packetis one such gem, and on Friday, they filed the news about their S-1 and plans to go public. The press release doesn't say much, but indicates that Goldman Sachs is the lead banker, with Credit Suisse and J.P. Morgan co-managing the offering.

I've followed Acme for quite a while, and when you talk about leaders within a vertical, you have to look at them for their space. The session border controller market is not as well defined as other nextgen network elements such as media gateways or media servers, but there's no doubt that Acme has had the most success in this space with Tier 1 carriers. Other session border controller vendors have strengths as well, but when it comes to landing the big ones, Acme has done the best job.

They're also in a great position because among all the main vendors in this space, I believe they've taken the least amount of venture funding - $31 million, only 2 rounds - and haven't taken any since September 2003. Wow! Compare that to Vonage and you tell me where you'd rather put your money. Slow and steady wins the race. So, their early backers - Menlo Ventures and Canaan Partners- will do quite well, and if the IPO flies, they'll be in great shape.

Personally, I think Acme will do just fine, and will show the market that the vendor space may be a better bet for IPO than the operator side. No need to comment further on Vonage, but Packet8 (another virtual operator) has been public for a long time, and hasn't done that well (down from about $2.50 to about $1.40 in the past 6 months).

Back to the session border space, it's worth noting that Newport Networks, who is gunning for the same class of carriers that Acme is serving, went public over a year ago on the LSE, and raised quite a bit of money - without revenues or any name customers to speak of. Their value has long since declined - and almost 10-fold (!!) in the past 12 months - for good reason, and you'd have to think that Acme has nowhere to go but up.

Looking ahead, this space has seen a few exits already, most notably Kagoor going to Juniper and Jasomi going to Ditech. Who's left? Well, NexTone and Netrake are the biggest and strongest pureplays in this space. Both are doing well for different reasons, but if I had to hedge my bets, I'd say NexTone is next up in this space to go public.

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5 comments:

ipcom said...

Posted by: Kevin Chou

Thanks for the nice words about Acme Packet. I'm an investment professional at Canaan Partners, and of course we're quite excited about Acme Packet. We actually have 7 IPOs in the hopper for this year, with Acme Packet being one of our tech IPOs.

You touched on a great point, which is what the Vonage IPO will do to the overall communication market's appetite for future offerings. Hopefully savvy investors will be able to seperate the two. Thanks for the good analysis.

Best,

Kevin

ipcom said...

Posted by: Kevin Chou

Thanks for the nice words about Acme Packet. I'm an investment professional at Canaan Partners, and of course we're quite excited about Acme Packet. We actually have 7 IPOs in the hopper for this year, with Acme Packet being one of our tech IPOs.

You touched on a great point, which is what the Vonage IPO will do to the overall communication market's appetite for future offerings. Hopefully savvy investors will be able to seperate the two. Thanks for the good analysis.

Best,

Kevin

ipcom said...

Posted by: Medhavi Bhatia

I think John is being too nice. First of all SBC is not a clearly defined market yet - it is still specific to telcos. Moreover I think of all the carriers offering VoIP service to consumers and businesses, Vonage would certainly be considered a leader and that IPO didnt do too well. The only thing that favors the SBC companies is that there are a lot of carriers to sell to. Most of these carriers will not make money off VoIP in the next couple of years.

ipcom said...

Posted by: gary

What is surprising/weird about Acme's S1 is they market they have 240 customers yet 52% of last two quarters revenue comes from just four accounts. I think they either have a scaling problem or just a small entry product or is the market or accounts just trying them but not growing? Or is it just some grand marketing until they get bought like Kagoor? That was a pretty small deal and now you don't hear or see them in accounts.

ipcom said...

Posted by: Q. Smithe

C'mon now Medhavi...at least let the readers know you have a vested interest in NexTone. ;->