NEC to Acquire NetCracker

Given the fate of mid-tier independent software vendors over the last three years — those at the $100 million mark or more — it was a matter of when, not if, Waltham, Mass.-based NetCracker Technologies would be acquired. The “when” happened today as NEC Corp. announced its intent to acquire the company for approximately $300 million.

NetCracker has been part of some of the industry’s biggest OSS transformation projects and has several Tier 1 customers, including Sprint, France Telecom, Telstra and UPC Broadband. The company also recently had reached the 1,000-employee mark.

“NetCracker has distinguished itself with a record of successful OSS transformations and exceptional software solutions and professional services for leading communications service providers,” said Kaoru Yano, president of NEC, in a statement. “The acquisition of NetCracker strengthens NEC’s offerings and brings even greater value to the global communications industry.”

The acquisition is expected to close in 60 to 90 days. NetCracker will operate as a wholly owned subsidiary of NEC and act as an independent company with its current management infrastructure in place, said Andrew Feinberg, CEO of NetCracker.

It also expects to retain its entire employee base. The companies first will begin integrating their sales organizations as their go-to-market strategies. “We plan to integrate at every level over time,” Feinberg said. “There is a natural fit with NetCracker’s OSS and NEC’s IMS solutions, as well as vertical solutions such as VoIP, IPTV and others for which we have well thought-out strategies for how that integration might take place.”

NEC is a global network expert with revenue of over $40 billion and more than 155,000 employees. Feinberg said it has a long history of innovation and is committed to technology with its $3 billion R&D budget. The company anticipates that OSS will represent a key element to new international growth that is expected to generate approximately 200 billion yen over the next five years.

“There is no doubt the company faces growing pains,” said Elisabeth Rainge, program director of network software at IDC. “Going past the 1,000 employee mark and scaling past the customer base they have — which they seem quite capable of doing — is actually logistically hard to pull off. So the structure of the company needed to change.”

Rainge said the deal has more in common with Alcatel-Lucent’s partnership with Amdocs’ Cramer division or its acquisition of Motive than it does the acquisitions of similarly sized competitors such as Granite Systems by Telcordia, MetaSolv by Oracle, Cramer by Amdocs or even Syndesis by Subex.

“Moving up into the service layer and the business layer is increasingly table stakes for the network equipment manufacturers,” she said.

She added that it’s clear simple monitoring and configuration of network equipment is no longer adequate. “NEMs are increasingly getting shut out of big equipment deals if they do not have an OSS portfolio,” Rainge said. “This makes NEC’s move a little bit tactical, but ultimately strategic.”

Focusing on his company’s reputation in large transformation projects, Feinberg said the acquisition makes his company stronger in that regard. “As carriers go through these massive transformation to become service providers rather than the network and access providers they have been ... OSS and service fulfillment become an absolutely critical strategic component of those transformations.”

Feinberg also cited the geographic benefits of the merger. NEC is strongest in Asia and Latin America, while NetCracker is strong in North America and Europe, albeit in quite different verticals for now.

As for the reaction of its existing partners, Feinberg said, “ We have spent a lot of effort building our channels. Some of those partners who are direct competitors with NEC may choose to no longer be part of our ecosystems, but many of our partners have significant relationships with NEC and this acquisition will accelerate those relationships.”

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