Despite the acquisition activity over the past few weeks from Cisco Systems Inc., Juniper Networks Inc. and Alcatel SA, experts say the industry isn’t about to return to the wheeling and dealing of 2000. Nor do they envision a bargain-buying binge by the bigger players.
“We’re not going to see any major purchases, because the capital’s just not there,” says Chris Nicoll, an analyst with Current Analysis Inc. “But there’s always some [merger and acquisition] activity going on.”
The Juniper and Alcatel purchases involved carrier-class products, while Cisco’s two acquisitions were small outfits whose offerings gradually will be rolled into the network giant’s product lines. Typically, it takes at least a year before larger vendors such as Cisco fully incorporate smaller firms’ products into their portfolios, Nicoll says, so enterprise customers are unlikely to see any quick benefits.
None of the recent deals would qualify as blockbusters by 2000’s standards.
The biggest, Juniper’s purchase of Unisphere Networks from Siemens, totaled US$740 million. The deal appears to be a solid move for Juniper, Nicoll says, because Unisphere’s edge routing products should be a nice complement to Juniper’s core networking boxes.
“This was a case of a company hoping one plus one will equal three,” he says.
Alcatel’s announced intent to purchase VoiceXML maker Telera last week for $136 million, and Cisco’s acquisitions of software manufacturer Hammerhead Networks and ASIC builder Navarro Networks, for a combined $258 million in stock, fill small holes in the respective companies’ portfolios, Nicoll says.
Bob Horstmeyer, a partner in Alliant Partners, the investment banking arm of Silicon Valley Bank, says merger and acquisition activity in most of Alliant’s sectors, which include enterprise software, semiconductors, life sciences and electronic systems, is starting to show signs of picking up. Alliant specializes in deals worth between $10 million and $100 million.
The one area showing no renewed life is telecom.
“It’s just terrible right now,” Horstmeyer says.
Horstmeyer isn’t sure the telecom sector will pick up any time soon.
“The RBOCs seem to have won, and things are going to be like they were before competition came in 1996,” he says.
That means longer request-for-proposal periods for telecom equipment suppliers and longer lab trials. Given the lengthier sales process, it’s unlikely large equipment suppliers will be under pressure to purchase smaller firms for specific pieces of technology so they can roll out their products more rapidly.
While things are looking up outside the telecom sector for Alliant, Horstmeyer says that isn’t the case for large merger and acquisition deals.
“That area is looking completely dead right now,” he says.
