Globes, the Israeli business daily, has reported that cVidya is in talks to buy fellow Israeli vendor, ECtel. You can read the Globes story here.
Both businesses sell software in the revenue assurance/revenue management sector, and both are facing tough competition in an overcrowded market. On face value, the logic for a deal is strong, but it may not be a straight buy-out. ECtel’s shares, which are traded on the Nasdaq, have taken a pounding, especially since the global economic meltdown. That leaves ECtel in the strange position of having a balance sheet worth more than its market cap. ECtel’s strong cash reserves mean that any business could, in theory, buy all ECtel’s shares at their current market valuation and make a gain of about U$4m on the deal by liberating ECtel’s cash pile. ECtel is cash negative, but has been optimistic about turning cash positive, a message that was reiterated when I spoke with ECtel’s CEO at the start of the year. Since then, ECtel reported disappointing figures for Q1. cVidya, in contrast, is still backed by venture capital – and seemingly not enough. In May, cVidya were looking for more VC funding. The lack of a subsequent press release suggests they were not successful.
In difficult times, the current VC backers of cVidya may well be asking how they realize an exit strategy. ECtel’s current Nasdaq listing may hold the key to the way out. A reverse takeover of ECtel by cVidya would give cVidya’s investors a route to the stock market whilst bypassing the need for an IPO – at a time when any IPO is likely to fail. Of course, in any such deal there will be a lot of wrangling over details. Big questions include who gets how many shares in each business, and how much of ECtel’s cash pile will be distributed back to its current shareholders before the takeover. Even so, consolidation would fit with the overall trend in this niche software sector. Both parties would doubtless present any deal as being a stepping stone towards the inevitable global success of the resulting business, though job cuts and cost reductions are an inevitable outcome. Ignore any positive spin. Even rose-tinted glasses cannot obscure the subtext of a deal between businesses under stress. Is this the sign that says the revenue assurance sector has now gone into decline?
On a lighter note, one can only wonder at the new name of an ECtel-cVidya hybrid. When Subex ‘merged’ with Azure they called themselves Subex Azure for a polite period of time. They later dropped the ‘Azure’ part to clarify that Subex had been top dog all along. With all the strange mixtures of capital letters in their current names, my guess is a combined new Israeli vendor would call itself ecVidyaTel. Saying that, perhaps I should not make fun whilst writing on a site called talkRA…
