The acquired companies have customers and value propositions of their own, and the acquiring companies have stated publicly that they hope to retain the management teams and exploit the synergies. Whether they can execute on these promises is another question – but at least attempting to do so says something about the state of the market.
One of the New Year predictions made in this column was that telecom mergers and acquisitions would continue during 2003. And they have, although none have rivaled the scale of the MCI/WorldCom deal. But consider:
Earlier this month, Internet interconnectivity provider Internap picked up two privately held, route-control vendors, netVmg and Sockeye Networks. The deals augment Internap’s existing intellectual property with respect to route optimization and intelligent route control, and, of course, eliminate these vendors as competition.
In August, Gric purchased privately held Axcelerant. Gric provides secure mobility solutions for global corporations; Axcelerant offers managed VPN services.
Also this month, privately held MegaPath Networks, which offers broadband access and managed IP network services, acquired TManage, a leading provider of managed access, VPN and security services.
Why the acquisition spree? And what’s the effect on network executives?
One thing that the acquiring companies have in common is that they’re not your father’s telecom providers. In other words, each one has carved out a value proposition and a service niche that’s markedly different from that of legacy telcos.
Internap’s claim to fame is the ability to route traffic effectively and cost-effectively across the Internet, making on-the-fly decisions about which routes to choose based on the users’ priorities and concerns.
Gric specializes in offering transport-independent connectivity services to remote and mobile workers (read: Wi-Fi, DSL and Ethernet).
Megapath focuses on providing broadband services to remote offices.
It’s worth noting that these nontraditional telcos have not only survived the telco downturn – they’ve prospered.
A second noteworthy point is that they’re all strategic acquisitions. That is, they all involve enhancing and deepening the acquiring company’s core value proposition. I admit this statement sounds like a blinding flash of the obvious – after all, why would a company ever make an acquisition that wasn’t strategic?
Too often over the past few years, we’ve seen “scavenger” acquisitions – one player purchasing the assets and carcass of a former competitor for pennies on the dollar. And many mergers (think MCI/WorldCom) often reflected the egos of their management teams more than any strategic plan.
Here, the acquired companies have customers and value propositions of their own, and the acquiring companies have stated publicly that they hope to retain the management teams and exploit the synergies. Whether they can execute on these promises is another question – but at least attempting to do so says something about the state of the market.
So what’s the effect on IT executives? Generally positive. Customers of the acquired companies can have increased confidence that their chosen vendors will stay in business, thanks to the additional financial strength of the merged companies. IT executives who are considering using any of the services by acquiring firms or through acquisitions will find the combined offerings stronger and more fully functional. And overall, the range of telecom choices is getting wider.
