Cisco acquires Israeli software firm

March 2013 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

The world’s largest maker of networking equipment, Cisco Systems Inc, continued an aggressive expansion plan in January when it announced its intent to acquire privately-held software firm Intucell Systems.

The deal for Israel-based Intucell will see Cisco pay roughly $475m in cash and unannounced retention based incentives. Cisco expects the deal to be completed in Q3 of the company’s financial year 2013, which ends in April. The transaction is subject to the usual closing conditions.

Intucell, founded in 2008, specialises in advanced self-optimising network (SON) software for mobile phone networks, which, according to Cisco’s press release “Enables mobile carriers to plan, configure, manage, optimise and heal cellular networks automatically, according to real-time network demands.”

The purchase of Intucell enables Cisco to continue the development of its network management capabilities. This has been an area of heavy investment for the company in recent times.

The continued proliferation of smart phones and tablet computers has placed an ever increasing demand on existing mobile networks, impacting upon and restricting bandwidth capacity enormously. Although some analysts have banked on LTE 4G networks easing the burden, the sheer number of devices attempting to access those networks has made this unlikely. Accordingly, as data traffic has increased, SON software has become something of a hot topic. Cisco itself predicted in 2011 that global IP traffic will continue to grow exponentially over the next few years. Its research suggests global traffic will have multiplied 18-fold between 2011 and 2016, at a compound annual growth rate of 78 percent. Cisco’s data indicates that global mobile data traffic will reach an annual rate of 130 exabytes in 2016.

The acquisition of Intucell is in line with Cisco’s software-centric direction going forward. The purchase also supports the company’s five foundational priorities to lead the market in networking across all customer segments. On 7 December 2012 Cisco chief executive officer John Chambers told analysts that the company intended to place a greater emphasis on software (including software acquisitions) rather than hardware. “This is a market in transition and the role of the network is going to take a big role,” said Mr Chambers. Cisco also announced in late January that it was selling its home networking brand, including the Linksys brand, to Belkin International Inc. In a press release announcing the Intucell acquisition Kelly Ahuja, senior vice president and general manager of the Cisco Service Provider Mobility Group, said “The mobile network of the future must be able to scale intelligently to address growing and often unpredictable traffic patterns, while also enabling carriers to generate incremental revenue streams.”

Cisco’s purchase of Intucell also comes in the wake of the $1.2bn acquisition of Wi-Fi and cloud networking vendor Meraki in November 2012 and the September 2012 purchase of Wi-Fi analysts ThinkSmart Technologies. “Through the addition of Intucell’s industry-leading SON technology, Cisco’s service provider mobility portfolio provides operators with unparalleled network intelligence and the unique ability to not only accommodate exploding network traffic, but to profit from it,” added Mr Ahuja.

Upon completion of the deal, Intucell, which will continue to operate under its current name, will become part of Cisco’s Service Provider Mobility Group, reporting to Shailesh Shukla, vice president and general manager of the Software and Applications Group. With the acquisition, Intucell will become the tenth Israeli company Cisco has purchased in the last 12 years.

Venture capital firm Bessemer Venture Partners will also benefit handsomely from the sale of Intucell to Cisco. Bessemer was the sole investor in Intucell’s Series A funding round in 2011. The firm took a 50 percent stake in Intucell for an investment of $6m. Bessemer also assisted Intucell in landing a $50m contract with US telecommunications giant AT&T. AT&T is one of 10 mobile operators who are current customers of Intucell or are working with Intucell on a trial basis. AT&T has indicated that it will continue to use the company’s software going forward.

Richard Summerfield