After losing 35% of its market cap over the past year and 61% in two years, the news that Allot Communications Ltd. (Nasdaq:ALLT; TASE: ALLT) is up for sale and looking for a buyer comes as no surprise. Preliminary contacts, which have not developed into official negotiations, were initiated with Radware Ltd. (Nasdaq:RDWR), another Israeli company known to be searching for potential acquisitions. There may also have been preliminary contacts with other companies. Allot did not respond to the report, and Radware said that it did not respond to rumors.
Located in Hod Hasharon, Allot develops solutions for improving the effectiveness of core network communications equipment. Managed by president and CEO Andrei Elefant, the company's market cap is $171 million. 2015 was a poor year for Allot, with revenue dropping 14.7% to $100 million and a non-GAAP net loss (albeit a small one). 2016 was supposed to be better, with revenue rising to $102-108 million and breaking even in non-GAAP accounting. Although the first quarter was rather weak, the company expects better results in the rest of the year.
The company has been undergoing a transition to security solutions and added value services in recent years, a process designed to generate long-term growth. At the same time, there has been a slowdown in its core deep packet inspection (DPI) business monitoring and management of Internet applications traffic that is affecting the company's results and making it difficult to attain growth and profits. At the end of the first quarter, Allot had $121 million in cash, amounting to 70% of its market cap.
Allot held its initial offering on Nasdaq almost a decade ago at a $250 million company value. At its peak four years ago, it had an $875 million market cap. The share has since lost 82% of its value.
Radware has $315 million for acquisitions
Managed by CEO Roy Zisapel, Radware provides availability, high performance, and enterprise network communications solutions, and computer and applications centers. The company's market cap is $526 million, following a 49% drop over the past year resulting from falling revenue in 2015. Radware has $315 million in cash, at least some of which is designated for acquisitions. At a recent conference organized by the Oppenheimer investment bank, the Radware CFO said, "The company is generating cash, and plans to make acquisitions perhaps small acquisitions of companies with $5-10 million in sales, i.e. a company value of $30-50 million, or a slightly larger company that will create synergy for us."
It appears that Radware's willingness to make acquisitions has led to various proposals, and one of them may have been from a party linked with Allot. At the same time, it can be hypothesized that were the companies interested in merging, they would already have found each other. After all, the Israeli market is not large. Everyone knows everyone else, and in this case, Zohar Zisapel, a veteran shareholder in Allot (8.5%), is also one of the owners of Rad Group, to which Radware belongs.
Published by Globes [online], Israel business news - www.globes-online.com - on June 16, 2016
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