Thursday, April 30, 2009

Acme Packet Acquires Covergence - Surprised?

I didn't know this was coming, but am not really surprised. This morning Acme Packet announced they were acquiring Covergence for a little under $23 million. In this economy, it's hard to say if that's a lot of money or a little money, but Acme is pretty shrewd and their management team is very seasoned, so my guess is that it's probably about right.

The basic details are in the press release, which adds that there will be a concall later today to share a bit more with those who wish to learn more.

I'm not surprised by the news in that it's very much in line with how the network infrastructure space has been consolidating over the past 2 years. It's part of the evolution process as leaders emerge across the various segments, and the followers have to make decisions about their future.

Acme and Covergence are really the last ones standing among pureplays in the session border controller space, and this move is no different than what has been happening in the other segments, especially media gateways and application servers. For gateways, look no further than GenBand and the moves they've been making; and for AS, it's basically BroadSoft's world now.

I've followed the SBC space since inception, and the much-anticipated consolidation process is now complete. What was once a face-off between Acme and Netrake (remember them?) for the Tier 1 carriers has now become another BroadSoft-like scenario. Early players like Kagoor and NexTone are gone, and while smaller players like Mera and Sansay are still out there, Acme pretty much has won the game.

For those who always felt SBCs could not survive as a standalone category, you can feel vindicated today - more or less. However, as was shown with Juniper and Kagoor, the Tier 1 equipment vendors have not succeeded in taking this market and simply adding SBCs to routers or gateways. To some extent this is being done by the likes of AudioCodes and MetaSwitch, but with Covergence being acquired, Acme can lay claim as proof that standalone SBCs have a future.

They may not capture all demand for SBC solutions, but there is definitely a value proposition there. Now that they don't have to deal with any head-on competitors, Acme can concentrate on keeping that value prop strong. Will they eventually be acquired by a Tier 1? Probably - but that's down the road.

Before that can happen, they must tie up their served market first, and that's what we're seeing today. With both companies being Massachusetts-based, the integration process should be pretty expedient. In terms of staying competitive - and alive - it's a good move for both companies, and hats off to Acme for living up to their name and finally getting to the top of the mountain.


Mike M said...

Jon, this is the first place I came to see your thoughts. This sounds like one of the deals we would cover in the old Mercator newsletter. I heard that Covergence was on the ropes for some time, and Acme is a good savior. Covergence raised a total of $46M I believe, so it was a bit of a fire sale. Honestly I cannot imagine there were any other bidders for the company, so I am actually a little surprised that Acme paid as much as they did. What was Covergence's fall-back position? Surely they weren't going to get any more money in this market.

Jon Arnold said...

Glad to hear you came by, Mike. Exactly the same thoughts about Mercator! I think the key here is that Acme gets stronger in the enterprise space now, and my guess is they didn't want to see this go to anybody else. SIP Trunking is hot now, and with that comes a huge upside for SBCs in the enterprise. With this move, Acme ensures they'll be part of this growth opportunity.