How much would you say Subex is worth? That is the question surrounding the Indian revenue assurance and OSS vendor after it announced its half-yearly results last week. Since raising $180m in Foreign Currency Convertible Bonds (FCCBs), they have seen the stock markets and their share price tumble. Meanwhile, Subex results have been modest in the last few years. Competition has been tough, but most of the harm suffered by Subex has been self-inflicted. In particular, the FCCBs were used to pay for the $165m cash purchase of Syndesis. With the benefit of hindsight, it looks like Subex badly overpaid for the Canadian firm. Per Subex’s own LSE filing, Syndesis “has been depreciating in value owing to the losses incurred by that business and the global market conditions“. Syndesis was overpriced, but if Subex had swapped its own paper for Syndesis’ paper, there would have been no fallout when the inflated values of paper started to fall. Instead, Syndesis was paid for in cash obtained from borrowing. Paying back that debt has become a severe headache for Subex’s management. They are now trying to find a cure, but no solution will be without some pain.
Archive for October, 2009
Reading the recent news on talkRA of the merger of EcTel and cVidya, and financial results for Subex got me thinking. Add to that when I was on an internal call last week, I was asked why we need to use the RA tool to perform a reconciliation, and not just use SAS.
Is it the case that the RA tool, as a specialised piece of software, that can command a premium price, is going the way of the dinosaur? On the phone call, I was able to argue that the configuration work had already been done so it was pointless to repeat it, but would I have an easy as response as this, if the work had not yet been started?
I have recently been thinking again about the TMF’s RA maturity model. What I am sure on is that the benefits from an RA investment (be that time, people or tool), will not be more than the lowest individual dimension of maturity. So if 4 of the 5 dimensions of the TMF maturity are high, but the “people” dimension (for example) is low; then only low benefits will be realised (don’t ask me to define low vs. high benefit).
And so the RA manager’s role must be to align each dimension to deliver and sustain the next level of maturity. Delivering this though requires thought, based on an honest appreciation of where capability is currently at, and strategic leadership to see how to move in the next level.
To bring this back to why I was thinking about this originally, there seems a disconnect between the seemingly unflattering business performance of RA vendors, and the apparent growing need for RA work. It raises the question that, in general, are RA tools and software more mature than the people and processes, or is it the other way around? And depending on that answer, is this recognised by the RA software vendors, and if so what could, or must, they do to lift their own profit?
Subex, the Indian revenue assurance and service activation vendor, has announced poor figures for its second quarter. You can read the press release from Subex here and the results here. Despite the optimistic tone of the press release, there is no hiding that the days when Subex forecast annual revenues in excess of USD120m have now receded from memory. Annual turnover of USD100m now looks to be a tough stretch for the would-be worldbeater. Halfway through its financial year, Subex has net consolidated revenue of USD48m, down 15.4% year-on-year. Q2 revenues were USD22.4m, a fall of 22.7% year-on-year. Reducing costs led to a small increase in EBITDA for the quarter when measured year-on-year, and improvement in the earnings ratios. However, yet another increase in interest costs left Subex with only the slimmest of profits before tax and exceptional items. Swapping from the consolidated figures to those of the core company, Subex Ltd, shows that a much higher proportion of the group’s revenues and costs are now going through the books of Subex Ltd. This confirms the impression that management has reigned in costs by concentrating production from its Indian base.
In the press release Subash Menon noted that
Stability is good, especially if revenues look to have reached their plateau and further sales are tough to find in a viciously competitive marketplace. Breaking even is a major turnaround from the disastrous losses Subex reported in 2008. However, current optimism is a lot more muted than that enjoyed during the heady days of growth where Subex’s star was ascending. The question for the revenue assurance market is whether Subex has reached its zenith and will have to settle with a new, lower level of ongoing sales, and what that means for its competitors.
At last, we can lift the lid on the worst-kept secret in the RA industry. Israeli vendors ECtel and cVidya have announced they will merge in a deal that will see ECtel shareholders receive a 58% premium on the recent share price (subject to the usual regulatory approval blah blah). You can read more details in the press release.
The reason for the merger was best explained with this comment by Yair Cohen, Chairman of ECtel’s Board of Directors:
In other words, forget the hype about endlessly growing markets and how everybody loves/needs/wants more and more revenue assurance. The truth is that competition is cutthroat and only the strongest will survive…
TEOCO, the US cost, routing and revenue management vendor, has sold a minority stake to private equity firm TA Associates. TA Associates are paying USD60m for the investment, but the press release does not clarify what percentage share of the business they acquired.
Dealing with an institutional investor is a major change of direction for TEOCO – which is short for ‘The Employee Owned Company’. The company proudly states on its website that TEOCO “turned down offers for venture capital funding so that we have total strategic control of our business”. Chairman and CEO Atul Jain explained the TA Associates investment by saying:
USD60m is a big sum by the standards of the telecoms revenue management sector. Over the past 12 months, talkRA has reported deals like USD17m of VC funding for Connectiva and a USD5m credit facility for cVidya. With shares in market-listed rivals generally down because of the financial upheaval, and Subex recently offering a deal to the holders of their USD180m in FCCBs where they would get more equity for converting their bonds, USD60m for a minority share implies TEOCO is amongst the most valuable enterprises active in this market. The deal gives TEOCO the financial firepower to consolidate rivals or to diversify its offering further. It was almost precisely a year ago that TEOCO acquired LCR vendor Vero. Expect market-changing announcements from TEOCO within the next year.