Would create world's second biggest BSS company - but could see counter offer
CSG Systems has made a splash in the BSS world by agreeing a deal to buy interconnect and billing specialist Intec Systems.
The deal would make the combined company the second largest BSS provider globally, a spokesperson told Mobile Europe. Intec had annual revenues of $169 million in 2009, and has 1,600 employees. CSG had 2009 revenues of $500 million.
However, the relatively low bid price compared to Intec’s 52 week high may tempt other industry players to make a counter-offer, analysts have said.
The deal values Intec at $372 million, at 72p a share. CSG’s bid document says this is a premium of 25.6% on the average Intec price in the three months leading up to the bid offer, and a 44% premium on the closing price on 22 July 2010. However, Intec’s shares have a 52 week high of 120p – recorded in January 2010.
Intec shareholder General Atlantic, which holds 11% of Intec’s share capital, is committed to accepting the deal, although that undertaking will lapse if a third party makes a better offer for the shares. Intec’s directors are recommending the deal.
Numis Securities analyst David Toms said in a research note that “the price feels very low to us.” The note added that Numis thinks there is a “reasonable chance of an industry counterbidder.” Investec said the bid was below its expected 80p-90p range. There was no indication which company would want to add Intec’s solutions to their current portfolio, however.
An Intec spokesperson said, “The Intec directors do think it’s a good deal and it works brilliantly from an operational point of view. There’s very little overlap from a product or customer point of view.”
Andrew Taylor, CEO of Intec, said in a statement that the company faces “increasingly difficult market conditions” and needed to achieve the scale and relevancy that its customers are demanding.
Expanding on that to Mobile Europe, Taylor said that the BSS world has been a tough environment for a couple of years now, as operators face a margin squeeze driven by mobile broadband network investments.
“Operators have been feeling those difficulties in their business models for 9-12 months and it’s something that we see continuing in the short to medium term,” Taylor said. This cost and margin squeeze, added to macro and local economic conditions, has contributed to the tough BSS environment.
“The board thinks this bid creates certainty for shareholders and creates a much more relevant and strong business,” Taylor said.
The acquisition would add Intec’s 400-strong customer list, which includes 60 of the top 100 operators, to CSG’s strengths in US cable and broadcast billing management.
CSG said that it will merge Intec’s solutions into CSG’s Advanced Convergent Platform, extending CSG’s outsourced business model. In CSG’s view, Intec gives it a sizeable international (non-US) platform, as well as enhancing its software and professional services business. As such, Intec will “form the base” for CSG’s international operators, CSG said.
Camille Mendler of Yankee Group said, "Intec has built a blue chip client base, but the challenge now is retention and upsell. The BOSS market is no longer a cottage industry of clever startups. It's becoming a land of giants battling for wallet share among telcos with a horizontal suite play. Put Amdocs and Telcordia in this crowd with CSG-Intec, but also look at upstarts AsiaInfo and Huawei which can throw keen pricing into the fray."
Peter Kalan, CEO of CSG said in a statement, “We believe that both Intec's broad suite of solutions aimed at fixed mobile and next generation networks and CSG's extensive customer interaction management suite will be attractive to one another's customer base as well as service providers worldwide.”
CSG said it “intends to offer employment to all Intec employees “with limited exceptions related to executive management”. It also said it reserves the right to reorganise the enlarged group as strategy evolves.