July 28, 2010 / 4:45 PM / 9 years ago

DEALTALK-Tech giants set sights on Canadian mobile software cos

(For more Reuters DEALTALKS, click [DEALTALK/])

* Network gearmakers eye Bridgewater, Redknee, Sandvine

* Multi-platform compatibility of cos lure possible buyers

* Nokia Siemens, Cisco, Amdocs seen as possible acquirers

* Cheaper valuations draw operators to the board

By Bhaswati Mukhopadhyay and Ashutosh Joshi

BANGALORE, July 28 (Reuters) - With the spiraling growth in mobile data consumption, network gearmakers are scouting for buys that will not only help ease network congestion, but also offer solutions like managing billing transactions.

Canadian firms Bridgewater Systems Corp BWC.TO, Sandvine Corp SVC.TO and Redknee Solutions Inc RKN.TO specialize in such niche offerings that are hard to duplicate, making the trio enticing takeover targets.

“Bridgewater, Sandvine and Redknee may be attractive acquisition candidates for network equipment vendors interested in upgrading their capabilities and for enterprise software vendors looking to extend their reach into the mobile broadband vertical,” analyst Ron Shuttleworth of M Partners said.

Bridgewater, which manages mobile data and congestion, could be on the radar of Alcatel-Lucent ALUA.PA, IBM (IBM.N) and Ericsson (ERICb.ST), while Sandvine could be targeted by Nokia Siemens [NSN.UL], Ericsson and Cisco (CSCO.O).

Asian companies like Huawei Technologies Co [HWT.UL] could also be among the potential bidders.

Canadian mobile software companies' stocks stand out as they are undervalued compared to their U.S. peers, with Bridgewater looking particularly inexpensive, said Francois Tellier, who is with the Transaction Advisory Services at Ernst & Young. (Graphic: link.reuters.com/cex79m)

Analysts expect Sandvine and Redknee to get offers that are more than double their current share price.

Bridgewater, whose stock closed at C$9.00 Tuesday on the Toronto Stock Exchange, could command about C$15 to C$17 per share, they said.

“For anyone looking to penetrate the CDMA market in the United States, Bridgewater is a nice addition to have,” Northern Securities analyst Sameet Kanade said.

The ability of these firms to seamlessly shift operations between 3G, 4G, long-term evolution (LTE) or WiMax is another draw for network gearmakers.

“For the network gearmakers, it could take four to five years to build what Bridgewater and Sandvine are doing,” M Partners’ Shuttleworth said.

There was a fresh wave of consolidation late last year with the Cisco-Starent deal, which spurred more deals such as the $35 million Tekelec TKLC.O-Blueslice transaction in May and the $1.2 billion Nokia Siemens-Motorola deal earlier this month.

Consolidation in the mobile infrastructure software sector is expected to further gather steam as companies such as Amdocs Ltd DOX.N, a maker of phone-billing and customer-management software, expand their presence in the mobile vertical.

Redknee, which has mobile billing and charging solutions, could be wooed by Amdocs, Microsoft (MSFT.O) and SAP AG (SAPG.DE).

“Redknee’s internally developed applications make it an attractive acquisition target as you do not have to deal with legacy issues,” said Ted Chisholm, vice president of Trimark Canadian Small Cos Fund, which owns 5.5 percent of Redknee. (Reporting by Bhaswati Mukhopadhyay and Ashutosh Joshi in Bangalore; Editing by Anne Pallivathuckal)

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