The Boston tech scene’s first big acquisition of 2014 just happened.
Telecom giant Ericsson said today it is acquiring Azuki Systems, an Acton, MA-based maker of video-delivery software. Terms of the deal were undisclosed, but it could be an important one for the New England tech community.
Azuki chairman Chris Lynch, reached by phone, declined to comment on the size of the acquisition. But he did say, “It’s a good financial deal. The investors, employees, and board are very happy with the economics of the outcome.”
Azuki, founded in 2007 and formerly known as Peermeta, raised about $35 million from venture investors over time, including Sigma Partners and Kepha Partners.
More important than the financial return to investors, Lynch says, is that Azuki’s “technology will live on beyond the company” and that its 40-some employees will stay in the Boston area and “grow significantly” as a group. The startup’s software, which is aimed at helping cable and telecom companies deliver video to any type of screen, will be integrated with Ericsson’s Mediaroom platform for Internet TV; the Swedish telecom acquired that business from Microsoft last year.
“Continuing this work as part of Ericsson will ensure that customers globally will have the most advanced support as they aim to deliver the best services for their subscribers,” says Azuki CEO and co-founder Cheng Wu, in a statement.
The company’s mobile-video technology “is going to be something we’re all going to use and enjoy,” Lynch adds. “I’m very satisfied with that.”
Lynch is a partner with Atlas Venture, but his role as an individual investor in Azuki goes back to the company’s start in 2007. Lynch and Wu had worked together at previous companies, including Acopia Networks (bought by F5) and ArrowPoint Communications (bought by Cisco). About a year ago, Wu replaced John Clancy as Azuki’s CEO, and Lynch came on as chairman of the board, as things were heating up at the company.
From sources in the industry, the sense I get is that Azuki’s revenues are relatively small—in the neighborhood of $10 million or less on an annual basis. A 10x markup would put the acquisition in the $100 million range. But if I had to guess, the price is probably higher than $100 million—if the investors are truly “very happy”—though I don’t know how much is in cash versus stock. In any case, Ericsson’s competition with Cisco and Alcatel in Internet video probably sped up the deal and jacked up the price.
Azuki could have chosen to go big and raise a lot more money as an independent company. But getting distribution as a startup in the mobile-video sector sounds expensive and challenging. In fact, Azuki had made progress working with telecoms and already had a distribution relationship with Ericsson, Lynch says.
“Ericsson was the strongest of the incumbents,” he says. “They ended up being the premium buyer.”
To date, Ericsson has not had much of a tech presence in the Boston area; perhaps that will change now. By contrast, its rival Cisco has bought a number of local companies in the past five years, including Starent Networks, Collaborate.com, BNI Video, and ExtendMedia—those last two in the video sector.
Lynch had a few more thoughts, looking back on his string of exits and his 16-year partnership with Wu at various companies. “I’m more cognizant and appreciative of these wins because I’m getting older, and Cheng’s getting older,” he says. “If you do the true hard work, you’ll always be successful and you’ll build that confidence into your psyche, and then you’re unstoppable.”
