Ericsson to Buy Telcordia for $1.15 Billion

Swedish telecommunications-gear giant Ericsson has agreed to buy privately owned telecom-software company Telcordia Technologies Inc. for $1.15 billion, people familiar with the matter said.

Telcordia's owners, private equity firms Providence Equity Partners and Warburg Pincus, put the company up for sale earlier this year, and the auction drew interest from other private-equity firms as well as rival telecom-software and gear makers, the people said. A deal is expected to be announced on Tuesday.

The private equity firms bought Telcordia from SAIC Inc. in 2004 for $1.35 billion in cash. It's unclear if the firms turned a profit on this deal.

Growing smart-phone and broadband-Internet use, which rely on high-speed data networks, have put telecom companies in a sweet spot as the economy recovers. In October, buyout firm Carlyle Group bought Syniverse Holdings Inc., another provider of mobile network technology, for $2.6 billion—a multiple of about 11 times earnings before interest, taxes, depreciation and amortization, or Ebitda, a standard measure used to calculate deal value. Carlyle also bought Commscope, a maker of fiber-optic cables, for $3.9 billion.

Piscataway, N.J.-based Telcordia began as Bellcore, a provider of software to the seven regional Bell telephone operating companies before being sold to SAIC. Today, it is a provider of software and services to U.S. telecom carriers, helping them run their wired and wireless networks.

Telcordia's technology, for example, allows phone-service providers to track billing and activate new services, though that is considered a "legacy" business. The company also has a line of next-generation products centered on Internet-protocol-based communications that is expected to bring in the lion's share of revenue in coming years.

Telefonaktiebolaget LM Ericsson sells telecom gear and services to both fixed-line and wireless network operators globally.

Telcordia earned $735 million in revenue for the 12-month period ended Oct. 31, 2009, according to an April 12, 2010, Moody's note. The company's Ebitda for the same period was roughly $166 million.

Telcordia's revenues were hurt during the recession because its clients spent less on its newer products, according to the Moody's note. But the company has won some new businesses in emerging markets, and recently has begun to stem the decline in revenues.