US telco acquires Lake Communications for €21.4m

25 Jan 2005

Irish voice and data networking firm Lake Communications has been acquired by a US Nasdaq-listed telco for an initial sum of US$28m (€21.4m), possibly rising to a total consideration of around US$45m, has learned.

It is understood that Arizona-based Inter-Tel signed an agreement to acquire 100pc of the issued share capital of Lake Communications as well as affiliated entities for US$28m, plus an earn out for its directors of up to US$17.6m. It is envisaged that the transaction will close within 60 days.

“Inter-Tel has been working with Lake for more than a year and we have been impressed not only with Lake’s products, but more importantly, impressed by the people,” noted Steve Mihaylo, chairman and CEO of Inter-Tel. “We expect the Lake management team to join Inter-Tel and continue to be responsible for the operation of Lake’s business as a prospective division of Inter-Tel. Lake’s experience and knowledge in the small systems market, combined with its sales channel, were significant considerations in our decision to enter into this agreement.”

Dublin-based Lake Communications was established in 1991 following a management buyout by a team led by its CEO Anthony Bermingham. The company quickly emerged to establish a worldwide reputation in the field of digital signal processor-based modem products geared to companies with up to 40 employees on specific local area networks.

By 2000 the company was tipped for a flotation and was making annual revenues in excess of US$40m and developing products for the lucrative ISDN and DSL markets. Customers included BT, KPN, Motorola, Fujitsu, NEC, Telecom Italia, France Telecom and Eircom. Lake designs and develops its products for sale through a distribution network of telecoms and distributors, including Inter-Tel in the US and outsources its manufacturing to third-party suppliers.

In 1998 Lake acquired network infrastructure firm Topology for around £IR5m. Lake sold the network integration firm in March 2000 for €30m. It then used the proceeds of this sale to acquire Atlanta-based Home Wireless Networking for €10m, bringing its staff levels to 100 people in Dublin, Cambridge, Sligo and Bristol.

It is understood that Lake’s association with Inter-Tel began back in 2001 prior to the HWN acquisition when Lake signed up Inter-Tel as its US distributor.

Last December Lake reported unaudited revenues of approximately US$31m for the year, including approximately US$3m in sales to Inter-Tel. In connection with this transaction, Inter- Tel expects to record an in-process research and development charge of between US$2m and US$4m in the first quarter of 2005 as part of the allocation of the purchase price.

Commenting on his company’s impending merger with Inter-Tel, Bermingham said: “We expect that the addition of Inter-Tel applications and Inter-Tel’s financial position will allow us to offer expanded products and services to our customers. We believe that the expected synergies and benefits of this transaction are significant, since both firms have similar core competencies in design engineering and managing sales channels. We also expect to provide Inter-Tel with a product line with a special focus on the small business segment and key relationships with international operators & distribution channels.”

By John Kennedy