Sources inform "Globes" that Israeli VoIP pioneer VocalTec Communications Ltd. (Nasdaq:VOCLD) is in advanced talks to buy local start-up company OutSmart for about $5 million. OutSmart has been for sale for over a year, after going through a difficult time organizationally and financially. Neither VocalTec nor OutSmart would comment on the report.
Outsmart, formerly known as Smart-SS7 and Recall Networks, was founded in 2001 by Eran Dotan, Ofer Salomon, and Arik Aberjel, but quickly passed to other hands in a battle for control. The company has developed fixed-mobile convergence (FMC) and intelligent network (IN) based solutions. Its technology enables users to switch between fixed-line and mobile telecommunications services without feeling the difference, with a single number and local service, with the call taking place on a personal computer.
Some $21 million has been invested in Outsmart over the years, by Accel Partners, and the Gemini Israel IV and Magma Venture Capital I funds. At the beginning of 2009, Zeev Bregman, now CEO of NICE Systems (Nasdaq: NICE; TASE: NICE) and formerly CEO of Comverse CNS.
Outsmart has several successful patents, but this has not helped the company to flourish. It has undergone several organizational shocks in the past few years. In 2005, Menahem Tirosh replaced Eran Dotan as CEO. At the end of 2007, Tirosh left the company in circumstances that are not clear, to be replaced by Jacob Bros, who had been a senior manager at Comverse.
Bros was responsible for bringing Zeev Bregman, whom he knew from Comverse, into the company. Bregman invested $500,000 in Outsmart in a financing round the company held at the beginning of the year. He was appointed chairman, and apparently received a substantial shareholding in the company, since the round was a downround, i.e. was held at a lower valuation than the previous round.
There is considerable synergy between the two companies, since Outsmart complements VocalTec's Internet telephony switching products, and VocalTec is interested in adding mobile telecommunications capabilities.
If the current deal goes ahead, it will be at a value of a few million dollars, but it is doubtful whether VocalTec will want to pay cash. At the end of the second quarter, it had $11.4 million, and recorded sales of $1.5 million and a GAAP-based loss of $991,000 in the quarter.
Published by Globes [online], Israel business news - www.globes-online.com - on November 4, 2009
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