Ynet News reported that Bessemer Venture Partners, who made the $6 million investment in 2011, is one of the biggest winners in the deal as it stands to gain one of the highest profits ever made in Israel by a venture capital fund, with a price-to-earnings ratio of 37. Represented in Israel by Adam Fisher, Bessemer holds a 47% interest in the company so it will earn a whopping $220 million.
Founded only four years ago by two entrepreneurs, Rani Wellingstein and Ido Susan, Intucell became a valuable company with relatively little outside capital. Holding a 35% sizable portion of the company both will earn $83 million each.
Intucell helps wireless cell towers talk to one another and prevent dropped calls, even in packed areas like Manhattan and San Francisco. AT&T partnered with Intucell soon after the Bessemer investment, and the results were “immediate,” says Bessemer’s Bob Goodman.
Besides Intucell, Bessemer is invested in two other Israeli startups; Traffix and Vasona and is regarded as a “deep pocket” venture capital fund. The company’s 85 employees hold an estimated $70 million in stock options; however, they will be able to exercise them only after a four-year term at Cisco.
Intucell is one of the most prominent telecommunications companies in Israel, quietly growing within only two years at a breakneck speed usually exhibited by internet companies rather than mobile network communications developers.
Two years after the six employee company raised its one and only investment of $6 million, its workforce significantly expanded while the company’s cash reserves mushroomed to some $20-$30 million.
Goodman, who led the investment for Bessemer said that company began generating revenue early on and Bessemer’s stake in the company was never diluted.
For the folks at Cisco, it made perfect sense to make the heavy investment in their purchase of Intucell. Firstly, Intucell does business with wireless service providers that are part of Cisco’s bread-and-butter business. Second, it brings some software capabilities to the table that are fundamentally similar to the software-defined networking paradigm that has Cisco and other networking companies are very interested in. The idea is basically this: Software controls can define and dynamically control the size and configuration of a network, rather than swapping out hardware.
Cisco turned to longstanding counsel Fenwick & West, which fielded a team comprising corporate partner Andrew Luh, tax partner Ron Schrotenboe, executive compensation and employee benefits chair Scott Specter and antitrust and unfair competition chair Mark Ostrau. The team all advised from the firm’s Mountain View, California office.
San Francisco-based technology partner Stephen Gillespie also played a key role in advising the Cisco on specific IP issues.
Herzog Fox in Israel was retained to advise Intucell and all of its shareholders. The team was led by hi-tech head Alon Sahar alongside corporate partner Haim Gueta, who specializes in advising companies in the technology sector on mergers and acquisitions, corporate finance and venture capital issues .
The deal is expected to close at the end of Cisco’s third fiscal quarter, which ends in April 2013.
Background to this deal:
The deal is the second time that Cisco has acquired an Israeli company in the last 12 months. In March of 2012 it acquired Israeli video software company NDS Group for $5B. Fenwick and Herzog Fox were both retained on this deal too, with the US firm advising Cisco from the US side alongside UK counsel Eversheds. The NDS legal line-up saw Herzog Fox, Skadden Arps Slate Meagher & Flom Travers Smith and Clifford Chance all win roles.
Fenwick’s co-chair of the M&A group, Douglas Cogen, is the firm’s primary relationship partner for Cisco.
Herzog has acted for Intucell on a number of deals in the past. Earlier this year the firm advised the software maker on its license service agreement with AT&T in connection with its Self Optimizing Network (SON) technology, which it deploys across its US wireless network.
Intucell’s SON uses big data to assess the state of a network and lets a carrier’s towers communicate with each other. That way they can expand or contract their cells in real-time so customers on the fringes of a block get picked up by neighboring towers, and users in the center of that block get much better reception.
Without SON software, a carrier’s service slows down and becomes less stable under heavy load or when users travel to the edge of a geographic block of the static grid. Any optimization had to happen manually, which was inefficient and inadequate.
Gueta and Sahar have known Intucell’s co-founder and CEO Rani Wellingstein for over a decade, having worked with him since he founded mobile home screen marketing company Celltick Technologies in 2000. Herzog kept up the relationship with Wellingstein since he co-founded Intucell in 2008 and has acted for the software maker ever since.