Swedish Firm to Acquire TeleSoft for $25 Million
TeleSoft, the Sorrento Valley manufacturer of products for Ada--a computer language increasingly being used in the production of major telecommunications systems--announced Monday that it will be acquired for about $25 million by Swedish Telecom, a giant Swedish telecommunications conglomerate.
After being acquired, TeleSoft will be merged with TeleLogic AB, a subsidiary of Swedish Telecom, with the resulting entity to be named TeleSoft AB. Industry analysts say the new company could become one of the nation’s leading providers of Ada products and applications. TeleSoft AB is expected to report revenue of $62 million in 1989.
Although Telesoft AB’s headquarters will be in Stockholm, San Diego will serve as the center of the company’s U. S. operations. The merger is expected to easily double the current 235-member San Diego work force by 1994. TeleSoft reported revenue of $18 million in 1988.
Founded in 1981, TeleSoft is the world leader in Ada compilers, which are used in the development of very large software projects, including defense and aerospace applications. A compiler is a device that “translates” the Ada language used by a programmer into a “machine code” that actually operates a particular system, a company spokesman said.
The Ada computer language is used by the U. S. Department of Defense and other government agencies. The Ada language, for example, is used in computer programming for airplanes, tanks, telephone switches and automated factories.
TeleSoft’s TeleGen2 Ada compiler technology has been chosen by leading computer manufacturers such as IBM, Sun Microsystems, Intel, Cray Research, Motorola and Unisys--many of which are providing data-processing systems for large-scale applications.
TeleInvest, another subsidiary of Swedish Telecom, has been a minority investor in TeleSoft since 1985, owning 29% before the acquisition. Under terms of the agreement, TeleInvest, acting on behalf of Swedish Telecom, will acquire the rest of the stock it doesn’t already own.
“This will put us in the No. 1 position in the Ada market,” said TeleSoft President Ben Goodwin, who will head the new company.
“Without question, this makes TeleSoft one of the leading manufacturers of Ada technology,” said Ralph Crafts, editor of Ada Strategies, a leading industry newsletter. “This is a major event for the Ada community. It is a strong validation for the use of Ada in major telecommunications and aerospace technology. I see it as a continuing trend of how major companies are switching to Ada.
“When you have a $4-billion telecommunications conglomerate (Swedish Telecom) acquiring TeleSoft, you realize that Ada is becoming the language of choice in the international market,” Crafts said.
Swedish Telecom invested in the fledgling software company in 1985 after deciding that it was going to use Ada technology for its telecommunications systems projects, according to Goodwin.
The merger is simply “the next logical step in the evolution of the two companies,” which have jointly engineered and marketed products since 1985, Goodwin said.
The possibility of increasing international trade also spurred both the Swedish conglomerate and TeleSoft to pursue a merger. According to Goodwin, Swedish Telecom has been seeking better means to sell its products in the United States.
“Since we (TeleSoft) already offer our products to major U. S. companies like IBM, etc., they saw us as an avenue into the U. S. market,” Goodwin said. “From our perspective, to be part of a larger company with more of an international scope was extremely attractive. And, of course, we’re hoping to target the European market, especially as we close in on 1992,” he said, referring to the target date for integration of the European Economic Community.
In addition, Swedish Telecom has agreed to commit $7 million annually for the five years to TeleSoft AB for Ada research and development.
“Now, there’s an offer that smaller companies frequently don’t get,” Goodwin said. “We’ll get an opportunity to enhance our current technology and build new products. And, in return, Swedish Telecom gets to use the new products we come up with in their telecommunications project.”
Industry analysts, however, are questioning how foreign ownership of TeleSoft AB will affect the company’s ability to win defense contracts.
“A lot of procurement agencies, for real pragmatic strategic reasons, are only interested in dealing with U. S.-owned firms,” Crafts said.
But Goodwin expressed confidence that TeleSoft AB won’t run into such problems.
“Before the merger could go through, TeleSoft AB had to be approved by the State Department, the state treasury and the Department of Defense,” Goodwin said. “It received approval from all the appropriate agencies, so we’re not concerned about any such problems.”
Among TeleSoft’s other owners are Welsh Carson Anderson & Stowe, a New York-based investment banking firm; Accel, a Princeton, N.J.-based venture capital firm; Chatham Ventures, a Boston-based venture capital firm; Fred Adler Co., a New York-based venture capital firm, and employees and management of TeleSoft.
