Subex's Menon: Can he really deliver?

Six months ago, Subhash Menon, Chairman and CEO of Bangalore-based telecom software vendor Subex Systems, ventured into enemy territory; he met John Cronin, President & CEO of London-based arch rival Azure Solutions, to talk about a possible merger. On April 25, several rounds of negotiations later, the two finally shook hands on the largest overseas deal by an Indian it company. Its value: $140 million (Rs 630 crore). The merged company, called Subex Azure Systems Ltd, will be the world's largest telecom revenue assurance company. To fund the deal, Subex will issue fresh shares and gdrs worth Rs 13 crore, taking its paid-up capital from Rs 23 crore to Rs 36 crore. "This merger makes great strategic sense since it will give us access to 23 of the 40 largest telecom companies globally and a combined market share of over 30 per cent in the $250-million (Rs 1,125 crore) market," says Menon, who will head the merged company.

He is already looking beyond his $250-million operating space to the larger problems confronting the $1-trillion (Rs 45,00,000 crore) global telecom market. "Losses from fraud and subscriber delinquency eat up 12 per cent of the industry's top line; that's a massive $120 billion (Rs 5,40,000 crore) annually. We believe we can help telecom companies minimise these losses," says Menon. To do that, however, he needs a truly global footprint, and it's here that the Azure deal offers a snug fit. "It marks the beginning of our journey to the next level and will transform Subex into a global company," Menon claims. Following the merger, which will be completed by June 2006, Subex's Bangalore headquarters will become the Asia-Pacific base for the combined entity, while the EMEA (Europe, Middle East and Africa) and us operations will be based in London, and in Westminster, Colorado, respectively. "The deal will give Subex a ready-made marketing front-end in the US and Europe," says Menon.

Though the combined entity will have a dominant position in several segments of the telecom software market, naysayers are already wondering if Subex, which closed the last fiscal with revenues of Rs 181.2 crore, has bitten off more that it can chew; Azure, after all, is a $31-million (Rs 139.5 crore) company. "Larger companies, like Wipro have struggled to digest smaller buys, so there is no guarantee that Subex will be able to fully integrate this acquisition. Menon and his team have also not told us how they will manage the overlaps in the product portfolios of the two companies," says an analyst. Menon is confident that he can pull it off. "I don't foresee any difficulties in integrating the two companies and expect the full benefits of the merger to accrue from 2007-08 when our product revenues will cross the $100-million mark," he says. His confidence stems from Subex's track record of buying and integrating five smaller companies in the past, but analysts remain cautious. Investors, too, reacted negatively to the deal. Subex shares have moved down since the deal was announced from Rs 633.70 on April 25 to Rs 587.70 on April 27.

Can Menon, who promoted Subex in 1992 with a Rs 20,000 loan, really deliver on his promise? Watch this space.