Oregon’s RadiSys Acquires San Diego’s Continuous Computing in Deal Valued at $120M

5/3/11Follow @bvbigelow

Hillsboro, OR-based RadiSys (NASDAQ: RSYS), which provides hardware and software for Internet-based telecommunications, has agreed to acquire San Diego’s Continuous Computing, a privately held company whose wireless infrastructure technologies are based on a set of software protocols called Trillium.

Under terms of the deal, RadiSys agreed to pay roughly $120 million, which includes $73 million in available cash and nearly $32 million in RadiSys shares when the deal closes. The Portland-area company agreed to make additional payments pegged to the sales of certain Trillium software products over a three-year period, or an optional one-time payment of $15 million to Continuous Computing.

The deal will combine two companies of similar size that have “very little overlap in products” and are focused in complementary areas of networking technology, says Continuous Computing CEO Mike Dagenais, who will continue as CEO after the deal closes.

Scott Grout, the current RadiSys president and CEO, was named as vice-chair of the board of directors. Brian Bronson, the current RadiSys Chief Financial Officer, will continue as CFO with the added title of president.

RadiSys has about 550 employees around the world, and today reported a $529,000 loss on first-quarter sales of $73.6 million. The company provides products, such as its Internet Protocol media server and network security technology, which target the Internet and core telecommunications networks.

Continuous Computing, which was founded in 1998, has about 400 employees globally and generated $56.6 million in revenue last year, according to Brian Wood, the company’s marketing vice-president.

Since Dagenais was named as CEO in December 2006, Continuous Computing has narrowed its focus on wireless infrastructure technologies that help to optimize traffic across mobile networks. “Continuous Computing is clearly focused on the challenges that [mobile] service providers face with mobile capacity,” Dagenais says.

While there will likely be some consolidation of duplicated functions, such as finance and business administration, Dagenais says, “This is actually going to be good for the business here,” as much of the wireless software and hardware technology development will remain in San Diego. “This site will continue to be here, and to grow,” Dagenais says.

In financial results released late today, RadiSys says the acquisition is expected to accelerate its revenue growth and “significantly increase” the company’s profitability. Continuous Computing’s gross margins were roughly 50 percent in 2010, “which is expected to result in meaningful expansion the current RadiSys margin,” according to the Portland-area company.

The companies say their combined product line should enable them to win more business in rapidly-growing communications markets, such as wireless 3G and 4G networks, mobile Long Term Evolution (LTE) technologies, femtocells, and deep packet inspection (DPI).

“Over time we expect to be able to leverage this into some very innovative and exciting new products,” said Wood of Continuous Computing.

The deal, which must be approved by the boards of both companies as well as state and federal regulators, is expected to close by the end of June.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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