Synchronica to “farm the land” following acquisition spree
Synchronica’s new CEO Angus Dent has said that previous CEO Carsten Brinkschulte decided to resign because he didn’t find the task of steering a consolidated, merged company into a profitable business “exciting enough.” Dent was speaking as he outlined his own plans for running the business on a more cost-efficient basis following a series of acquisitions over the past two years.
Synchronica, which offers mobile messaging technology and services to operators, built itself up with the acquisition of technology and businesses that enable mobile IM and other IP-based messaging services. Targets included Neustar and Colibria, and then in the summer of 2011 the operator bought Nokia’s operator-branded messaging business.
The Nokia acquisition gave Synchronica around $2 million worth of monthly recurring revenues from Nokia’s ongoing operator contracts – evening out its cash flow position and revenue projections for the first time. Yet costs were still in line to be higher than Synchronica’s total recurring revenues of $3 million per month, resulting in losses for the company, according to Dent.
Many on Synchronica’s board felt that the company, at that point, needed to enter an aggressive cost-cutting phase, harvesting the benefits of merging and consolidating its acquisitions and moving cost centres, such as R&D, to lower cost areas. Yet Mobile Europe has learnt from sources close to the company that Brinkschulte differed on the extent of the consolidation, and the speed at which the company needed to cut costs.
Mobile Europe has learnt that he even mooted the idea of transferring the business to be headquartered in Canada, where the majority of the Nokia messaging staff is based (Nokia’s unit being based on its acquisition of Montreal-based Oz Communications). That idea was quashed by others on the executive team, however, and in fact Synchronica has reduced the number of ex-Nokia staff and locations in the USA and Canada.
Dent described the need for cost-cutting to Mobile Europe in the following terms. The first phase of acquisition growth has ended, Dent said, and the company must now grow organically. Headcount has been reduced from 360 to 280, offices have been closed, and the balance of the workforce has moved from what Dent “more expensive locations” such as the USA, to The Philippines and “other low cost regions”. “A few more” of the ex-Nokia staff had departed than from the Synchronica side of things,” Dent said.
“We have bought a lot of land, and now we must farm the land,” he said.
Dent added that these measures mean that the company’s operating costs are now running at a lower level than its recurring revenues of $3 million month. The company would “really see the benefit of this”, he added, in the first Quarter of 2012, and move to profitability
As for Brinkschulte, Dent said, “Yes there was a disagreement. He resigned and was not pushed in any way, shape or form. Our focus was on building a profitable business, and I think Carsten just didn’t find that exciting enough.
The shelved proposal to move to Canada, Dent said, was fixed around the idea of attracting investment from Canadian pension funds. To be eligible for investment, a company needs to be based in Canada. “That’s really not a way that we wish to go because that dilution for our existing shareholders would be simply horrible,” he said.
So does the company now feel it retains enough capability to invest in new product, and to continue to address the next generation messaging opportunity that its operator customers must, as a matter of urgency, look to develop?
Dent added that in his opinion operators are still keen to find ways to build on their customer relationships to compete with the OTT messaging players. Operator-led IM and IP messaging services have not ben greatly successful in mature markets, although the major T1 European operators are now committed to launching messaging services based on an evolved version of the Rich Communications Suite specifications. RCS-e will enable operators to deliver the sorts of value-added messaging services that internet players currently offer, independent of device OS and in an interoperable, compatible manner between operators.
Companies such as Synchronica aim to benefit from that opportunity by selling the messaging servers, network gateways and, in some cases, client technology, that operators will need to enable the services. Synchronica, with its operator contracts from the Colibria, Neustar and Nokia acquisitions, was targetting that opportunity before Brinkschulte left. Dent said that that strategic focus had not changed.
Dent said, “This has been a refocussing, not a change in strategy. We still want to offer the next generation of messaging. Things like RCS etc are still very much on the roadmap and we will deliver and keep going with those things and carry on with that. We have enough in place to drive innovation to exploit our existing contracts, and have enough capital to met our immediate aspirations. And when we are profitable then we can consider reinvesting more of our cash.”
Brinkschulte resigned at the end of September. This morning he circulated a note that said that he remained “a shareholder and supporter of the company I co-founded 7 years ago, and I am looking forward to hear of future developments and customer wins.”
“It has been an exciting journey in which we have expanded the company from a small team in Berlin to the global leader in next-generation mobile messaging with more than 90 operator and 10 device manufacturer customers,” Brinkschulte wrote.