AT&T in first Israeli buy: Interwise - Haaretz

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AT&T in first Israeli buy: Interwise

By Eran Gabay

Big backers, small rewards

AT&T is making its first acquisition in Israel. The U.S. phone company is buying the startup Interwise for $121 million. The deal for the firm, which makes software for conferencing via Internet, follows four months of talks. It is expected to be finalized by the end of the year.

The startup's investors can't be too pleased with the deal, though. They've put nearly $100 million in Interwise in five financing rounds since its establishment in 1994, the most recent in 2002. The deal with AT&T reflects a small return for shareholders: some don't even cover their original investment.

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The list of shareholders reads like a Who's Who: NTT, Accenture Technology Ventures, Lazard Technology Parters, GIMV, UBS Capital, Leeds Equity Partners, STI Ventures, Challenge-Etgar Fund, General Electric, J.P. Morgan, SAP, Texas Pacific Group, Shrem-Fudim-Kelner, Link Technologies Venture Capital, and Jim Manzi, former president of Lotus.

Interwise has led an interesting life. Alive for 13 years and raised most of its investment during the high-tech bubble. It then managed to survive the high-tech crisis earlier this decade. The company started out as a supplier of software services, later specializing in e-learning.

In 2003 the company suffered a nearly fatal crisis. With its e-learning activities unable to meet its goals and after Microsoft's decision to withdraw from negotiations to buy the company, the two founders Hillel Kobrinsky and Frank Zvi were ready to write off the investment.

They requested a one-month extension and came back to shareholders with a new business model - redirecting the firm toward conferencing for companies, bridging old communications infrastructure (TDM) and advanced IP infrastructure. The change was a success. Revenues increased, and by 2005 the company broke even, which it has managed to maintain by constant investment.

"There were years that I struggled to explain the meaning of VoIP (Voice over Internet Protocol). In recent years the market has been doing the work itself. Business people want to fly less, and even if they do still meet with their distributor once every six months, they speak with them weekly. Video conferencing capabilities should be available to every employee in a business. In Israel the area remains undeveloped, but in the U.S. it is growing rapidly."

The Frost and Sullivan IP research company has valued the international market of all conferencing types in 2007 (voice, video, virtual conferencing) at $5.9 billion. Conferencing solutions based on voice and multimedia for organizations is likely to improve cooperation and work processes within an organization.

The solutions include video conferencing, virtual Web meetings, long distance learning, seminars and broadcasting over the Internet. Interwise provides a single platform for these needs.

It was Cisco, as usual, that was responsible for the huge growth in the field, when it bought Internet conferencing provider WebEx for $3.2 billion. Cisco also considered Interwise's solution, but preferred the expensive alternative, and pulled the entire industry into a competition over video calling capabilities.

The decision by the communications infrastructure company to buy a supplier of conference-call and file-sharing services reverberated throughout the market, and forced its competitors to respond. Even now, businesses' ability to create a collaborative working environment over the Internet remains limited, and most organizations still do not appreciate the possibilities of using the Internet as work tool.

AT&T is considered one of the two largest communications firms in the world, and the largest in terms of annual revenues - about $63 billion in 2006. The president of the AT&T group, Ronald Spears, said Interwise's technology and experience in conferencing will contribute greatly to AT&T's international presence.

After the deal is completed, Interwise will operate as a business unit within AT&T Global Business Services, and Kobrinsky and Zvi will continue to manage its activities. AT&T announced early this week that Interwise's international activities, including the research and development center in Israel, would continue to operate in their present configuration.

Interwise employs 150 at six centers around the world, including 70 at its R&D center at Airport City. Customers in Israel include the National Insurance Institute, the Foreign Ministry, Bank Leumi, Amdocs and Nice.

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