Ericsson said today it is buying OSS/BSS company Telcordia for $1.15 billion in a bid to expand its services for the telecommunications sector.
The infrastructure vendor signed a deal with Telcordia parent companies Providence Equity Partners, LLC and Warburg Pincus to acquire all of the company's shares. Telcordia's 2,600 employees are expected to transfer to Ericsson under the terms of the agreement.
The acquisition still has to be approved by regulators and is expected to close in the fourth quarter of this year.
Ericsson CEO Hans Vestberg said the acquisition would "reinforce and expand" the company's position in the OSS/BSS market. The deal comes as many wireless operators are looking to upgrade their billing systems to handle more complex pricing structures for mobile broadband services, such as tiered billing.
"The importance of operations and business support systems will continue to grow as more and more devices are connected, services become mobile and new business models for mobile broadband are introduced," Vestberg said in a statement. "In this context, Telcordia brings very skilled people and knowledge, a large business in North America and other markets, as well as a good multi vendor product portfolio."
Telcordia President and CEO Mark Greenquist said the combined product portfolios of Telcordia and Ericsson would be a "formidable combination to help operators deal with their service challenges going forward."
Ericsson estimates the market for software and systems integration, valued at $35 billion last year, will grow at a compound annual growth rate of up to 8 percent between 2010 and 2013.
Telcordia said it posted sales of $739 million last year. Ericsson expects its purchase of Telcordia will become accretive to earnings within a year of the deal's closing.
About 80 percent of Telcordia's sales come from customers in the United States, including AT&T, Qwest and Verizon, Ericsson said in a call with analysts.
Telcordia was founded in 1984 as a spin-off from Bell Labs and was purchased from Science Applications International Corporation (SAIC) by Providence Equity Partners and Warburg Pincus in 2005. The private equity firms each held an equal stake in Telcordia.
Telcordia led the development of technologies such as number portability, toll-free service and caller ID. Telcordia says it holds 90 percent of the U.S. market for wireless number portability and claims its software handles nearly all of the country's toll-free traffic.