Acision may face challenging times – Ovum

21 Feb 2007

An analyst has warned that the new owners of Acision, the company formerly known as LogicaCMG, will face challenging times ahead and may need to restructure the company and potentially shed numbers in order to meet changing market conditions.

Yesterday an Irish consortium, consisting of Atlantic Bridge Ventures, its venture partner Larry Quinn (former CEO of Logica Mobile) and supported by Dermot Desmond’s International Investment and Underwriting (IIU) and US holding company Access Industries, acquired LogicaCMG’s Telecoms Products business for €392m in cash.

The new company, now known as Acision, works with 300 network operators and service providers in 135 countries who serve one billion consumers.

However, Ovum research director Jean-Charles Doineau warned: “”Challenging times indeed face Acision: the SMS centre market has now become a commodity, with very high processing store and forward machines that cope with billions of messages per day.

“Transition to IP-based messaging has proven uneasy to manage in developed countries – and in developing countries competition (Chinese Huawei, Israeli Comverse) has made market conditions tougher,” he said

“At a time of consolidation in the telecoms industry, primarily driven by scale of reach, Acision, with 1,700 people operating in 22 countries, needs to revamp its product development strategy and needs much larger economies of scale.

“Acision’s management must think very carefully about its strategy going forward,” Doineau warned

Doineau said that it was curious that although operating the largest installed base and having one of the most comprehensive product portfolios in messaging, LogicaCMG wasn’t acquired by an industry partner.

“There is probably a trade off between price and benefits there but it is worth noting,” he said. “Valued at between 11 and 12 times its EBITDA (earnings before interest, taxes, depreciation and amortisation), the company wasn’t attractive enough for any of its competitors (Ericsson, Nokia, Comverse and Huawei, amongst others) to consolidate the infrastructure business.

“At a LogicaCMG company level, it is also interesting to see that after a few years, the strategy of the company in the telecoms vertical has changed. Over the past few years, LogicaCMG was ‘playing the game’ of building a service business using commercial channels built out of a product business. Though theoretically interesting, this strategy certainly reaches a dead end when, geographically speaking, your product channels and your service capabilities are not aligned,” Doineau said.

“Where is the SMS centre business (60pc of LogicaCMG Telecom Products’ revenues in FY 2005) heading nowadays? North America, Latin America, Asia-Pacific – which are all regions where LogicaCMG has barely any service capability. Leverage between both channels is certainly becoming increasingly difficult,” Doineau warned.

By John Kennedy