US-based Seven Networks is to acquire European rival Smartner as it vies to mount a challenge to BlackBerry maker Research in Motion in the fast-growing wireless email software market and boost its IPO prospects.
Privately-held Seven did not disclose financial terms of the deal, but said the purchase of Finland-based Smartner Info. Systems would help it expand beyond the United States and Japan into European, Middle Eastern and Asia-Pacific markets.
Smartner has relationships with more than 35 mobile operators, mainly in Europe, which would complement Seven's own relationships with top US and Japanese operators such as Cingular Wireless and NTT NoCoMo .
"We have put together a clear No. 2 player in mobile email behind RIM," said Chief Executive Kent Thexton of the deal that will be formally announced on Monday.
He said the scale of the company created by the deal would reassure handset makers in the rapidly growing but increasingly crowded market for such software, and investors when it taps the capital markets sometime next year.
Unlike RIM , which gets the bulk of its revenues from sales of BlackBerry, both Seven and Smartner only sell "white label" software that runs on almost any device, and can be offered by operators under their own brands.
Redwood City, California-based Seven said that Canada's RIM, whose Blackberry device is now a must-have among executives, was mainly focused on a high end of the market, and there was enough opportunity to take mobile email to the mass market.
Waterloo, Ontario-based RIM had 2.51 million BlackBerry subscribers at the end of its fiscal fourth quarter to Feb. 26, but Thexton said the market potential was huge.
"We actually see the market as much bigger than what RIM is going after right now ... We believe it to be a market of hundreds of millions of users," Thexton, former marketing chief of British mobile firm O2 Plc , told Reuters.
"We'd be more akin to Microsoft and they (RIM) to Apple."
The business potential for wireless email software has drawn in a host of rival players, notably Visto Corp., Space2Go, Intellisync , Good Technologies and even Microsoft.
Thexton said a vast majority of users could expect to see their emails pushed to mobile devices over the next two to four years, as handset makers improved the processing power in phones and operators sought to increase data traffic on their networks.
RIM has also licensed the software that it uses in BlackBerry to other handset makers such as Nokia, Motorola and Samsung, while continuing to sell its own devices.
Thexton said both Seven and Smartner had performed well in 2004, and were poised to double revenues this year and achieve profitability in 2006. The combined entity would also be profitable in 2006, he said.
"We will be crossing into profitability in the back half of this year and we will be profitable in 2006," he said, adding that Seven would go for an initial public offering in the United States over the next 12-18 months.
Investors in Seven include Ignition, Greylock and Softbank Asia Infrastructure Fund, with Amadeus Capital, Equitec Partners and IT Provider being common shareholders in both companies.
