Nortel to buy software maker Clarify

Nortel today said it will exchange 1.3 shares for each Clarify share and stock option. Nortel expects the acquisition to close in the first quarter of next year.

Nortel's stock closed today at 52.38 a share, down 0.31, while Clarify's shares jumped 1.97 to close at 45.31.

The deal comes at a time when the customer relationship management (CRM) software market is consolidating quickly as standalone companies

Dataquest analyst Jeff Snyder said the software acquired as a result of today's deal will complement Nortel Networks' existing call center software. It is the company's second purchase since announcing a new customer service initiative.

In August, Nortel Networks paid $436 million for Periphonics, a maker of customer self-service software. Periphonics' technology allows bank customers, for example, to check their account balance or transfer funds without going through a customer service representative, Snyder said.

Clarify's software, which is used internally at Nortel, allows a customer service agent to pull up a customer's historical sales and service information when a call comes through.

"It shows every time you've called, who you are, why you called in the past," Snyder said. "It not only helps the agent serve you better, it gathers information on the customers to keep the marketing and sales group more informed."

A surprise deal
Today's deal surprised some analysts, who expected that the San Jose, California-based Clarify, which holds about a 22 percent CRM software market share, would be bought by another software maker instead of a networking firm. However, many companies are scrambling to get into the sales and services market because of its growth potential.

Market research firm International Data Corporation (IDC) expects the worldwide market for CRM software to grow to $11 billion in 2003, up from $1.9 billion in 1998.

"The CRM software industry has been extremely hot," said Pat Mason, a financial analyst at Preferred Capital Markets. "For competitive reasons, Nortel needed to get in the [front office] space."

"We're finding telecom companies migrating up the food chain in the software environment," he added. "It's going to be interesting to see how the competitive situation changes in the front office software market."

Clarify chief executive Tony Zingale said the deal helps Clarify leap far ahead of other software makers, including No. 1 front office software maker Siebel, as well as Oracle and PeopleSoft-Vantive.

"This move blows all three of them away," he said, adding that the deal also expands Clarify's global reach to about 150 countries.

However, software gorilla Siebel will be a tough competitor for anyone to tackle. Siebel is in no way strapped for cash, customers, or clout. The company has a market value of about $7.72 billion--a fraction of Clarify's market value of about $1.05 billion.

Too much money?
Analysts today even questioned whether Nortel paid too much for Clarify, which had 1998 revenues of $130 million.

Although $2.1 billion for Clarify seems high, in light of the $441 million PeopleSoft-Vantive deal, Snyder said the higher price makes sense.

"Clarify is a more stable company than Vantive," and has a much stronger financial profile, he said.

Bill Conner, newly announced president of Nortel's enterprise solutions division, said the acquisition price was based on Clarify's growth potential, which is estimated at about 80 percent, rather than just past revenue.

Under the deal, Clarify will operate as a wholly-owned subsidiary of Nortel Networks, functioning within Nortel's enterprise solutions business. Zingale said he will continue to head Clarify and said he will retain all key company executives, as well as the firm's 800 employees.

News.com's Wylie Wong contributed to this report.