Indian RA giant Subex has announced the sale of the Activation wing of its business to Netcracker; see the press release here. Netcracker will purchase the Activation assets for an undisclosed sum.
Subex dramatically diversified into the Activation business with the 2007 acquisition of Canadian firm Syndesis, which cost Subex USD165M in cash. The purchase proved disastrous. Management initially struggled to make the promised cost efficiencies, whilst Syndesis’ products fell well short of generating the revenues or margins that were expected. To pay for the acquisition, Subex also left itself straddled with an enormous debt overhang of USD180M of Foreign Currency Convertible Bonds (FCCBs) and no prospect of servicing them. The firm was unable to generate the additional cash needed to pay for the eventual redemption of the FCCBs, and a slump in the share price meant there was no prospect that they would be converted into equity. However, management regained focus and growth in their core strength of Business Optimization (a.k.a. “revenue assurance plus”), slimmed the business and returned to it profit, and successfully renegotiated the deal on the bonds, allowing the business to bounce back from its Syndesis-induced nadir. This sale closes the chapter on the sorry story of the Syndesis takeover, and means management will now concentrate on the products and services which made them global leaders in the first place.
Though the purchase price was not disclosed, a hint was given that it would be in the region of the USD26M. As reported in this article, Subex boss Subash Menon noted the deal would not impact the P&L, implying the amount received will equal the carrying value of the assets on the balance sheet. This would be less than half of the renegotiated value of Subex’s FCCBs, which are due for redemption in March 2012. Yet again, Subex’s share price has slid downhill since its FCCBs were renegotiated. The current share price is about 60% of the conversion price of Subex’s FCCBs. In other words, unless the share price has a surprising bull run, then Subex will have a struggle to service its FCCB debt, or more likely will need to renegotiate their terms again. Disposing of the remnant of Syndesis is good for the business in that it will improve profitability and allow Subex’s management team to focus on the company’s core strengths, which remain impressive. However, the debt incurred for the Syndesis acquisition continues to weigh Subex down.