A Marina del Rey start-up crucial to the integrity and security of many of the world's top smartphone apps agreed to be acquired Tuesday for $230 million in cash.
TeleSign Corp.'s proposed acquisition marks a celebrated outcome for its three co-founders, who started the company out of USC's Marshall School of Business in 2005 and then labored for several years at a service that initially might have been ahead of its time.
But Belgian telecommunications firm BICS is paying a low price for TeleSign compared with the valuations that business software companies have attained through initial public offerings and acquisitions in recent years.
TeleSign said it generated more than $100 million in sales last year. Its shareholders could receive about $100 million in additional cash if performance goals are met, according to person familiar with the matter who was unauthorized to speak publicly. But even a total purchase price of $350 million would be about three times annual revenue. Companies such as Twilio and Okta have gone public in the last year at five to 10 times sales.
TeleSign may have been hamstrung by not having a fully predicable, subscription-based business model. The service has centered on both charging transaction fees and selling more lucrative contract plans.
The company also remains entangled in a multi-pronged patent battle with Twilio, which offers some overlapping services. TeleSign has accused Twilio of infringing on a handful of patents, while Twilio has three patent infringement allegations outstanding against TeleSign. TeleSign declined to comment on the lawsuits.
By analyzing phone numbers, call data and other information, TeleSign verifies the identity of new users of video games, apps and other services to prevent account fraud. It also deters hackers by adding additional hurdles to verify log-in attempts. Customers have included video game maker Blizzard Entertainment, business software developer Citrix and dating app Tinder.
Joining the primarily state-controlled Belgacom International Carrier Services gives TeleSign "orders of magnitude" more data to analyze and bolster its user profiling systems, TeleSign Chief Executive Aled Miles said. BICS owns and operates telecommunications cables and satellites that carry calls, text messages and Internet queries across the world.
Details of how TeleSign and BICS would partner haven't been set. But leveraging the Belgian firm's infrastructure could bring down a major TeleSign expense — leasing bandwidth — and boost profits. The tight integration could result in fewer errors and more communications features for customers, Miles said.
"TeleSign is no longer a software developer only," Miles said. "We can now bridge between the hardware carrier world and the digital service provider world. Right now, the ability to differentiate ourselves in the marketplace is on top of minds."
TeleSign plans to retain its nearly 170 employees in Marina del Rey and a similar number in Belgrade, Serbia.
Miles, who joined last year and would remain CEO, said several potential acquirers approached TeleSign over the years, but BICS was the one company with which officials saw a strategic fit.
TeleSign founders and executives including Ryan Disraeli, Stacy Stubblefield and Darren Berkowitz are expected to get about 30% of the payout, according to the source. The rest would go to investors that put nearly $80 million into the company, led by Summit Partners, Telstra Ventures, Adam Street Partners and Santa Monica's March Capital Partners.
James Montgomery, March Capital's managing director said his firm was pleased to see "such a strong outcome and future for the company."
TeleSign also drew from the Curious Minds business incubator in West Hollywood.
"TeleSign was started when Internet security did not seem to be a problem and phones were far from ubiquitous like today," Curious Minds' David Gonen said in an email. "It's been an incredible journey for us to see TeleSign progress from an early pioneer … to global leader."
The acquisition is subject to regulatory approval and could close in the third quarter of the year, the companies said.