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Subex buys US software company

Mar 6, 2000

Subex has announced a takeover of IV Generation Inc USA a telecom software services firm for $ 6.7 million (Rs 290 m) in an all cash deal. The company which has revenues of around $ 6 m includes AT & T and Lucent Technologies as its customers. Subex is mainly into the manufacture of telecom software. It’s products include ‘Ranger’ a fraud detection mechanism used by cell phone companies. The company has Hutchinson Max as one of its clients. The company made a private placement of Rs 250 million at a premium of Rs 740 per share a few months ago.

Subex is following the trend set by the other the Indian software companies, which have plans to takeover companies based in the USA. This is the biggest market for Indian software companies and the companies want to have a local presence in these markets.

It is the private placement that Subex has made that has enabled the company to fund the all–cash deal. However, the fact remains that an equity swap would have better for the company since the current market capitalisation of Subex at over Rs 7 bn would have helped the company fund the deal quite comfortably. It is quite possible that the US company has preferred an all cash deal since it is larger in size than Subex.

However, the flip side is that with the US markets valuing tech companies highly, takeover of companies at the current valuation levels may elongate the pay back period. The current deal however seems to be at a decent valuation from Subex’s point of view especially keeping in mind the companies business, its revenues and its client list. How much of the US company’s turnover is accounted for by AT & T and Lucent one does not know.

Market View:
With the Indian market valuing tech stocks in general and the telecom software businesses in particular at high levels, Subex has been rated as a buy by most analysts.

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