Wednesday, July 2, 2008

Espial Acquires Kasenna

Here's a noteworthy item that came out on Canada Day. In short, one IPTV middleware company has acquired another IPTV middleware company. It's not a huge story or a huge deal, but still of interest to anyone following this space.

The players involved are Ottawa-based Espial Group and California-based Kassena. It's a very small deal dollar-wise - not even $10 million - but there are a few aspects worth commenting on.

First, it's a Canadian story. I've followed Espial for quite some time, and they went public up here on the TSX a little over a year ago.

Second, you don't often see Canadian companies acquiring U.S. companies in the IP world. Mitel's acquisition of Inter-Tel last year was another example, but on a much larger scale. Aside from not often seeing these kinds of deals, you may well not have heard about it either. In addition to this being a really small deal, the timing is a bit odd. Falling on Canada Day, it didn't really get picked up until today. And coming into the July 4 break, it may not register much in the U.S. this week either. Is it possible the timing was intentional so as not to attract much attention? I'm not close enough to either company to speculate, but I welcome your thoughts.

More importantly, the story is worth noting as a sign of low-level consolidation in the IPTV market, which is taking longer to hit its stride than most of us have expected. This is a natural stage for any emerging sector, and together these companies should be stronger. It's always tough to gauge synergies among like companies, especially when they are of comparable size.

The real problem here is that the IPTV space - especially middleware - remains fragmented, with no dominant player. Well, they're all competing against Microsoft - that's a given - but otherwise, they're all pretty small. As a result, the longer the market takes to mature, the harder it is for the indies to hang in for the payoff. At this stage of the game, revenues are hard to come by, and options for toughing it out another quarter or two are limited. That would explain why the size of this deal is so small. Better to take a small buy-out now than risk getting nothing later on.

I've always liked Espial, and hope this deal takes them to another level. If it does, I'm sure we'll see other roll-ups as the other middleware vendors look for ways to keep pace. I doubt this will be a game-changer for Microsoft, but it sure gives Espial more runway now to ramp up and try to emerge as a leader among the indies.

All I can do here is draw some home-grown attention to the news and hope they can make this work. Go Canada!

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