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Zeacom sold to Canadian buyer for $38m

Telephony software maker Zeacom has been sold to Canada's Enghouse Systems for $US30 million ($NZ38 million).

Zeacom says its fiscal 2012 revenue was $US29 million.

Founder and CEO Miles Valentine would not give specific numbers, but Friday afternoon he told NBR ONLINE the company, which he founded in 1994, "Is nicely profitable and has been for years."

A sale to offshore buyers can mean disappearing local jobs, whatever promises are initially made (Navman's consumer business being a classic example).

Asked if Enghouse would keep Zeacom's Auckland team intact, Mr Miles replied:

"Yes. Absolutely a full staff contingent will stay in New Zealand."

There have been two "peripheral redundancies" from a staff of 90, but overall " Enghouse see New Zealand as a very company-friendly work environment, with good levels of expertise. Our Development team are a specific reason they purchased us. They are especially interested in our Microsoft Lync work and products/focus." (Lync is Microsoft's product for unifying all forms of communications - including mobile, landline, txt, email - into a single system).

Mr Valentine himself will stay on, becoming an Enghouse regional vice president.

Offshore investment can help a New Zealand-founded company expand globally and increase the number of local jobs.

But the annoying thing here is that, again, we're looking at a company that's received millions in government grants - which a North American owner will now benefit from.

Right Hemisphere, which received an interest-free loan of more than $10 million among other government backing, is another prime example. It is now owned by Germany's SAP. 

For now, that's a good news story. Right Hemisphere is expanding and SAP NZ country manager Graeme Riley tells me his company will its new acquisition reach new markets and expand into new areas.

That's good. But something about this sticks in my craw.

Mr Valentine, naturally, has a different view.

"The MSI [Ministry of Science and Innovation] grant is a positive, and with that in mind, I expect there will be ongoing growth in the New Zealand team."

(Whatever the politics of the situation, there's no doubt Mr Valentine has worked hard for his money. A couple of years back I talked to him about his everyday work regime as split his time between Auckland and LA - and two different office drinking cultures. Check it out here.)


RAW DATA: Enghouse announcement

Enghouse Systems Limited (TSX:ESL) announced today that it has acquired Zeacom Group Limited for a purchase price of US$30.6 million, subject to certain price adjustments. Zeacom’s annual revenues for fiscal 2012 were approximately US$29 million.

Headquartered in Auckland, New Zealand, Zeacom’s leading edge contact center software and business process automation solutions have been installed in over 3,500 customer sites worldwide.

The Zeacom Contact Center product is a full multi-media product offering a cloud, hosted or on-premise solution. It is primarily targeted at the SMB contact center market and distributed through an extensive telephony reseller channel.

Zeacom’s recently released new products are also well positioned to meet the growing need for software-centric solutions. Zeacom has operations in New Zealand, Australia, the United States and the United Kingdom.

“We are excited about the acquisition of Zeacom,” stated Stephen Sadler, chairman and CEO of Enghouse.

“Zeacom presents us with a great opportunity to address the SMB space more effectively, extend our reach into new geographies and further position Enghouse to meet the evolving needs of our current and future customers.”

“We are very pleased to be joining Enghouse – a well established, global provider of management interaction solutions,” stated Miles Valentine, CEO of Zeacom.

“In a consolidating and evolving market, scale and resources matter and with Enghouse, we found the perfect partner to take advantage of the market opportunities ahead of us.”

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Comments and questions
24

System's working perfectly, Chris. New Zealand taxpayers provide the capital to build up an asset, foreign company comes in and buys it. As long as somebody made a killing on the sale who cares about the long term?

Yeah get over it...go buy some Diligent and treat yourself. You'll feel good too because no Government grants ever to this star.

Government grants are bad news. Give growing companies some tax latitude to fund their expansion and save everyone time and money.

I, for one, welcome our new Canadian overlords.

It's all aboot money aye.

I can see where Chris is coming from.

I have no problems with the sale to the Canadians. But if Governments funds/grants aided the success then I think the grant should have some sort of payback clause in the agreement. ( ie. if the company is sold within a certain time frame then it is paid back). By doing this the Govt. has funds to give to some other worthwhile small company struggling to financial assistance to grow.

+1

I agree there should be some mechanism for the taxpayers to get their money back.

But in the meantime many congratulations to Miles Valentine and his team. They've worked very hard for over ten years through good times and bad and have earned their success.

two positives: i) new zealand shows again it is more than capable of creating interesting IP that can be sold and ii) ACC gets $11.5m back.

Maybe the government should invest the money as equity rather than as a loan they could use NZVIF to manage this.........yeah right.

Another succesful company that has no sign of NZVIF or its band or world leading investors anywhere near it.

The Clarke government had a report from Boston Consulting Group - and substantial modelling for comparison, that recommended an approach such as the israeli government start-up/high growth sector funding, whereby Government capital injections gave them equity which could be sold-down (or retained) over time. In such a way, taxpayer money is limited on the downside, unlimited on the upside - AND with invested capital at stake, there are strong influences to ensure that policy decisions are oriented to growth/export.
But the academics, teachers and community workers who ruled in the land of Helengrad didn't have the wit, courage or understanding to striek for this kind of leadership (Pete Hodgson being perhaps, the most intelligent, notable exception who found himself on the wrong side of the aparatchniks).
NZVIF was the result.
(BTW, is there public record of Right Hemisphere re-paying the loan as per terms? That nice little earner, which of-set Venture Capital having to invest more, depleted almost most ALL available funding for other high growth companies in that fiscal year).

The problem with NZVIF was the execution. As with most businesses the idea is only part of the answer, you need management that can deliver and they have failed.

I think Right Hemisphere paid back the loan.

Ross's proposition gets to the heart of the matter. My taxes helped to fund this, so I think we ought to be treated as any other VC source and see a payback with dividend. The NZ government once again shows its lack of the long view and makes the country poorer. But good on Miles for making a go of it anyway.

In all cases, the full loan + NZTE expenses etc + interest should be repayable in full immediately the sale goes through. The lads and lasses get to divvy-up the balance.... every-time a company moves to offshore ownership. The promises to keep it here normally last long enough to do a final gouge of the charity kitty and then bugger off. [The list would be too long to print of those rippers-off.]
Give the IRD the job: it's easy money., if properly nailed down before the first cheque-handover..

NZ taxpayers ripped off yet again.

Why was it sold overseas? Probably because NZers won't buy shares. They'd rather buy property. So Miles has two options - stay the owner, and get his weekly drawings while he retains his responsibilities, or, sell to whoever will buy. And NZers won't buy, so it goes overseas.
This is a part of the reason why NZ's banks are now almost all owned in OZ. The Aussies buy shares!

Why doesn't act like the "Dragons" - give a grant in exchange for a piece of the action and then is this situation happens the Govt will at least get their money back with interest. Create an "Angel SOE" and this will be the only avenue for Government Grants and or R&D fundings/subsidies. Go further a SOE equivalent to the Virgin Group - i.e. a Branded Co-op to which small companies can join into and share resources and clout to help move forward into international operations. Normally I would not expect a government to get involved in business in this way but we keep loosing to much - This may well be an answer - obviously needs more thought.

OK may be silly but its about time we thought outside the box - why can't the government represent its own constituents in some new way.

Peter, No, not silly at all....as you say, let's get these ideas up onto the white board; no-one (and most certainly NOT this government or their prdecessors!) has a lock on ideas......in fact, they are bereft of the imagination to overcome their risk aversion.

Good debate but can anyone tell me why the company was sold so cheaply? 1X revenue - what kind of technology multiple is that? If the company is profitable then the Canadians look like they got a very good deal indeed. And compare Xero/Facebook etc valuation metrics!

And we will continue to sell our assets to overseas interests as long as our gummint follows their bad interest rate policy (low rates).
time for a serious reality check!
WG

The government has no control (thank god) over monetary policy. Parliament and the RBNZ are completely independent. The RBNZ administers the reserve bank act to the letter all it does is implement monetary policy directed to the economic objective of achieving and maintaining stability in the general level of prices, that’s all.

Also low interest rates allow people to borrow cheaply to start up or expand business, high interest rates do not.
I am a saver, so it frustrates me too, but it is what it is.

You realize the Right Hemisphere loan was paid back when it got purchased by SAP right? That was the whole point of it being a loan.

[Indeed. Interest free. See: http://www.nbr.co.nz/article/right-hemisphere-new-zealand-taxpayer-love-ck-112371
- CK]

Many of the comments here suggest the govt should act more like a VC/angel. No, VCs and Angels already do that. Govt's role should be something different.

Congratulations to Miles and his team!

I would expect that this is good news for "New Zealand Inc" and will bring more investment and job creation to this country.

It will also return capital to the investors in the business, who will no doubt re-invest in other NZ businesses.

Over the last decade, I've personally been involved in building up and selling three technology companies (Exonet, EMS-Cortex and Datasquirt). Each sale resulted in the multi-national buyer (MYOB, Citrix and LiveOps) investing much more capital into the business, keeping the hub of the operation in NZ and creating a lot more quality jobs and opportunities for New Zealanders.

The money I received (and my fellow investors received) from selling the above companies has mostly been further invested in more NZ businesses and created even more NZ jobs and opportunities.

I really don't understand those that think this type of transaction is bad for NZ.

[More on Mark's story here: Destiny in motion: Auckland software company sells to US gianthttp://www.nbr.co.nz/ems

- CK]

I'm for selling of assets as long as it means those new owners invest in our country with the foreign capital, and bring lots of new jobs to kiwis and fund economic growth. We are a too smaller country with a too smaller population too do it on our own.

Miles has done what any smart founder would do.. take what's available including Govt $s. So don't shoot him on this point ! You probably could on other matters not canvassed in this article ! The fault is with the 'system' by which such moneys/investments are available.