Bloomberg News

Mellanox Sees More M&A After RadVision Buyout: Israel Overnight

March 15, 2012

Mellanox Technologies Ltd. (MLNX), an Israeli adaptor maker, expects more takeovers in the sector as the acquisition of RadVision Ltd. (RVSN) helps boost the volume of technology and Internet deals to the highest since 2007.

RadVision, a Tel Aviv-based maker of video-conferencing systems, will be acquired for about $230 million by U.S. communications-equipment manufacturer Avaya Inc. (3414924Q), according to a statement yesterday. It was among the 358 M&A deals involving technology and Internet companies in 2012, equal to $17.8 billion, compared with 377 valued at $11.1 billion in the same period last year, data compiled by Bloomberg show.

“We do expect to see more consolidation in multiple markets,” Mellanox Chief Executive Officer Eyal Waldman said in a phone interview yesterday from London. “There’s a constant flow of companies that want us to look at them. We may do an acquisition if we think it will accelerate our growth.”

Mellanox bought Voltaire Ltd. (VOLT), a developer of server and storage software, for $208 million in February 2011, and Waldman said last month the company would consider another purchase should it bolster growth. The $17.8 billion of technology company M&A announced in 2012 includes Cisco Systems Inc. (CSCO), the largest maker of equipment for computer networks, buying U.K.- based NDS Group Ltd. (NNDS) in a deal valued at about $5 billion and also announced yesterday.

Shares of Mellanox listed on the Nasdaq Composite Index jumped 2.1 percent to $38.73 yesterday, three cents shy of a record high. Barclays Plc raised the Yokneam Elit, Israel-based company’s price target to $45 from $42, and said its share of the market will grow. The Bloomberg Israel-US 25 Index (ISRA25BN) of the largest Israeli companies in New York rose 0.9 percent to 87.66, a five-week high.

‘Very, Very Good’

Mellanox -- whose products are used at data centers, investment banks and stock exchanges to transfer and store data -- ended 2011 with $238 million in cash and investments after completing a secondary stock offering in September that generated around $100 million. As the size of Mellanox’s potential customer market grows, the company may make an acquisition to better compete with competitors Intel Corp. (INTC) and Broadcom Corp. (BRCM), said Joseph Wolf, an equity analyst at Barclays Plc in Tel Aviv.

“Clearly, they’re looking at acquisitions that will provide them with incremental sales and earnings,” Wolf said yesterday in an interview. As for being a takeover target, Mellanox has become “very, very good at making a very specific product, so you could see a large semiconductor company saying they’d like to have them in-house,” Wolf said.

“Yet I don’t see that as imminent,” he said.

‘Stay Independent’

Oracle Corp. (ORCL), the world’s second-largest software company, owns a 9.6 percent stake in Mellanox.

M&A deal volume for the Internet and technology sectors reached $25.2 billion in the same period of 2007, data compiled by Bloomberg show.

Mellanox trades at 26.78 times the average of analysts’ earnings estimates, and reached a record-high 26.805 on Feb. 24. That compares to the 16.3 average for companies on the Nasdaq Composite (CCMP), 11.4 times for Intel and 13.4 times for Broadcom, according to data compiled by Bloomberg. Wolf estimates that Mellanox’s sales will grow 30 percent in 2012 and its shares will trade at 29 times earnings estimates.

“We think that as long as we can grow faster than anyone that can buy us, we think it will be better for our shareholders if we stay independent,” CEO Waldman said.

Elbit Downgraded

RadVision shares jumped 4.5 percent to an 11-month high of $11.70 in New York, bringing the advance this week to 53 percent.

Israel, whose population of 7.8 million is similar in size Switzerland’s, has about 60 companies traded on the Nasdaq Stock Market, the most of any country outside the U.S. after China. The nation is also home to more startup companies per capita than the U.S.

Elbit Systems Ltd. (ESLT), an Israeli defense contractor, added 2.4 percent to $38.12 in New York as Clal Finance Brokerage Ltd. raised their rating on the stock to outperform, meaning they expect it to do better than the market return. Clal previously rated Elbit market-perform, an expectation returns will be in line with those of the market. The price estimate was cut to $44 from $49.

Elbit, which reported its first net loss since 2007 on March 14, may generate revenue growth of as much as 15 percent in part by boosting sales in emerging markets, Chief Executive Officer Joseph Ackerman said on March 14.

Syneron Medical Ltd. (ELOS), an Israeli company that develops aesthetic medical devices, gained the most in a month, rising 3.8 percent to $11.39.

Israel’s TA-25 Index (TA-25) fell yesterday for the first time in three days, losing 0.2 percent to 1,109.63.

To contact the reporter on this story: Leon Lazaroff in New York llazaroff@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at Eobrien6@bloomberg.net


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