Tuesday, July 17, 2007

Scouring the Valley for deals

Sometimes, if you keep plugging away, you can pull something off — even if it’s daunting during the low points along the way. Yipes, which provides “managed Ethernet services” for corporate customers ran some endless VC funding cycles in the past. Launched in 1998, it had gone through bankruptcy and had raised a whopping $385 million — a seeming impossible amount to generate a profit for its investors. One more symbol of the excess of the Bubble.

Today the company has just been acquired for $300 million by Reliance Communications. Groups like Pramod Haque’s NVP, Focus and Sprout kept investing in the company through the years and probably didn’t make much. In the VC industry, they say any exit is a good exit. The deal works out to about 10 times 2006 revenues. In an earlier interview, CEO John Scanlon told that Yipes was on track to do $70 million in sales this year and is cash flow positive. It had better be.

Reliance also owns FLAG Telecom and this purchase makes them a competitor to Level 3 (LVLT). Yipes extends the reach of FLAG into US metros, especially in the Bay Area and East Coast. The traffic between India and US is on an upswing, and the deal makes perfect sense. Over past couple of years, large corporations have seen their data needs go up exponentially. File transfers, data back-ups, VPNs - all need more bandwidth that what the traditional means can provide. The long-in-the-tooth T-1 doesn’t cut it anymore. Instead an increasing number of corporations are opting for Ethernet-based services.

Yipes is happy to sell exactly that: multi-megabit Ethernet services that were more than a standard 1.54 megabit/second T-1 connection and the expensive DS-3 connections. Reliance will have to keep buying if they want to be competitive in US. It will also be interesting to see how the pros at Yipes handle the meddling family-style management of Reliance, as Om Malik had remarked.

To me, scavenging the Bay area for Bubble leftovers looks to be a good idea. Especially when we have a `fully stuffed’ Reliance ADAG steamroller humming in our backyard, hungry for more….

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