Behind the BelAir acquisition

Elizabeth Howell
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Ericsson initiated talks in late 2011, sources say

BelAir Networks was laying the groundwork for an initial public offering in the years leading up to its acquisition by Ericsson Canada, but ongoing market volatility and an inability to achieve a "critical mass" derailed those plans, company insiders say.

BelAir Networks CEO Bernard Herscovich.

The Kanata-based business attracted significant attention from venture capitalists, who were apparently not actively seeking a suitor to buy the 10-year-old firm - that is, sources say, until Ericsson came knocking in the latter part of 2011.

The takeover, announced Feb. 21, is not yet finalized, but is expected to close this spring.

Ericsson Canada CEO Mark Henderson said BelAir's expertise will be valuable as his company constructs networks able to switch users seamlessly between mobile and Wi-Fi technologies in order to handle growing data traffic demands.

"What they've been able to accomplish with a fairly small group of people is impressive," he said in an interview.

"It was closely assessed by Ericsson as a technology competence. For (us), the behemoth, to come in and say, ‘These guys really know what they're doing and it's going to be a great fit into us" - it's a great vote of confidence."

When it does go through, all 120 BelAir employees will eventually join the 1,000 Ottawa-based Ericsson employees who are preparing to move from the former Nortel campus into a renovated facility on Terry Fox Drive.

The purchase price was not disclosed, but investors said they were happy with the payoff and had plans to either put the money into supporting new companies, or to deploy it to their own backers.


IPO ‘toyed with'

An alternative exit - an initial public offering - was also considered, according to multiple sources.

In 2009, BelAir went as far as lining up several major Canadian banks and preparing to file a prospectus, said one person who spoke on condition of anonymity.

But the subsequent stock market plunge, and rocky market performance since then, prompted BelAir to stay out and carry on with its business plan.

Economies of scale also became a factor, according to another investor.

"We toyed with the idea, but the market is just not there in Canada," said Sam Znaimer, a Vancouver-based general partner with Ventures West Capital Ltd., an investor in the firm since 2005.

But he categorized BelAir's growth as good for Ventures West. BelAir had $10 million in annual revenues when the investment group came on board. Today BelAir has substantially more, although Mr. Znaimer wouldn't disclose the amount. The Ottawa firm's employee base also doubled in the same time frame.

From investor Export Development Canada's point of view, going for an IPO required more than market conditions. Part of it was getting to a "critical mass" of sales, said Jennifer Brooy, the former head of EDC's equity program and now with its enterprise risk management division.

"When you're selling to large players, large carriers, etc., how willing are they going to be to (withstand) large lumps with business? As a small company, could they raise the leverage debt financing to be able to build out? There's a whole host of things that go into it."

Ottawa lawyer Debbie Weinstein, who served as legal adviser to BelAir, also saw cautionary tales in the performance of Ottawa companies in the public markets.

After Smart Technologies, which has an office in Kanata, executed its IPO in 2010, the stock plummeted.

In August, the firm announced it will shut down its Kanata assembly operations and transfer to contract manufacturers by the end of fiscal 2012, although other employees will remain. The strong Canadian dollar was blamed for the situation.

Depressed stock prices made Bridgewater Systems and March Networks more attractive as acquisition targets last year when respective takeovers by Amdocs Ltd. and Infinova (Canada) Ltd. were announced.

"Not overwhelming great stuff for public company investments," Ms. Weinstein said.


Wi-Fi for networks a new field

Comcast Ventures, which had a seat on BelAir's board, said Wi-Fi for carrier networks was not the Kanata company's focus when the investment group joined in 2005. At that juncture, BelAir was developing Wi-Fi solutions for rugged conditions.

But as time went on, the carrier network market exploded. In fact, another division of the VC's parent corporation became a customer of BelAir.

It's common for the venture arm to scout out opportunities from which the larger company can benefit, said Comcast Venture's David Zilberman, who also sat on BelAir's board.

"(BelAir's CEO) and the sales team did a fantastic job of managing the accounts," he added, saying that was key to BelAir's success as a small player. "The customers really established true relationships with the team."

The acquisition, from BelAir's point of view, made sense as it was looking to expand its reach to other countries, noted chief executive Bernard Herscovich in an interview the day after the acquisition was announced.

"We're operating in a market which is really growing very fast right now," he said on Feb. 21.

"It started exploding with major customers in the United States, but now we have prospects and opportunities coming from many countries."


Cashing out

Investors in BelAir Networks:


BDC Venture Capital

Comcast Ventures

Covington Capital

Export Development Canada

McLean Watson Capital

Panorama Capital

T-Mobile Venture Fund

Trilogy Equity Partners


Ventures West Capital Ltd.


Organizations: Ericsson Canada, Nortel, Export Development Canada Smart Technologies Bridgewater Systems March Networks Amdocs Ltd. BDC PartnersVenGrowthVentures West Capital

Geographic location: Ottawa, Canada, Kanata United States

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