Siemens enterprise, Enterasys in $550M joint venture

Enterasys has found its billion-dollar buy. The company will be combined with Siemens' Enterprise Communications group, of which a controlling interest was acquired this week by The Gores Group, the private equity firm that owns Enterasys. Gores will also include its SER Solutions call center software company in the joint venture.

The result will be a $5 billion firm with more than 1 million customers, 15,000 employees and a presence in 80 countries, according to a fact sheet on the Siemens Enterprise Communications site. Gores will own a 51% stake in the joint venture while Siemens retains 49% ownership.

Enterasys made no bones about a desire to grow significantly -- $1 billion in revenue had been mentioned -- in order to better compete with Ethernet switch market leader Cisco and new entrant Juniper.

(View our slideshow of 2008's hottest tech merger and acquisition deals.)

Gores and Siemens invested approximately $550 million in the joint venture. The transaction is expected to close Sept. 30, pending regulatory approval.

The deal gives Enterasys, a maker of security-enabled LAN switches, a wealth of unified communications and VoIP infrastructure and applications. Siemens' HiPath and OpenScape unified communications offerings are among the leaders in that market, according to Enterasys CEO Mike Fabiaschi.

"This makes us a No. 3 or 4 player in VoIP," Fabiaschi says. "Thirty-five percent of the time, if somebody's looking at a data network infrastructure, they're also looking at a VoIP or a video application."

"Scale and brand were a big deal to a company like ours," he adds. "Clearly, this accomplishes the scale and the brand. Siemens is considered a top 50 brand in the world. This is a home run for us.”

Enterasys needed it. The company's been mired at a 1.5% share or less of the $18 billion Ethernet switch market for years, according to Dell'Oro Group, ranking about eighth among all vendors.

Siemens, meanwhile, has been looking to sell its Enterprise Communications group for two years, ever since it spun off its carrier communications business to a joint venture with Nokia called Nokia Siemens Networks. The Enterprise Communications group was not part of the arrangement.

The joint venture has the right to use the Siemens brand but it has not yet been determined if the Enterasys brand will be retired, Enterasys officials say. It is also unclear what operational role, if any, Enterasys management will have in the joint venture but it will be operated by Gores.

Mark Stone, senior managing director of Gores, will be the chairman and interim CEO of the joint venture.

In addition to having the right to use the Siemens brand, the joint venture will inherit key patents and licenses. Production facilities in Leipzig, Germany; Curitiba, Brazil; and Thessaloniki, Greece, will be transferred to the joint venture.
Enterasys facilities in Andover, Mass., will remain operational as well, Fabiaschi says.

Siemens products such as the OpenScape UC Server will remain an integral part of the portfolio, and support and upgrades for products such as HiPath 3000 and HiPath 4000 are to be continued for the long term, the companies say.