BroadSoft Secrets Revealed: Behind the Scenes of Sylantro Acquisition

By Michael Tessler, Managing Partner

One of the most sought after stories is the details behind some of the acquisitions we made at BroadSoft. Scott can share some of the integration secrets and post acquisitions surprises we encountered. This particular story is perhaps one of the most strategic acquisitions in our history.

In 2007, we found ourselves competing in several larger service provider tenders with our closest competitor Sylantro and this was especially true at companies like BT. BT had been through lots of vendors and this next selection was going to be critical.

Sylantro was now being run by a new CEO at the time. After a discussion with our long time banker, Paul Bowen, we decided to approach Sylantro with a merger offer. Jim and I hopped on a plane to meet with their board in Silicon Valley. The board was made up of well known west coast venture investors. We traveled there determined to do a deal. Jim and I explained our business and the benefits of merging the 2 companies instead of beating each other up in the market.

We made a very attractive offer for a company that was doing a little less than 20% of our revenue and bleeding cash. Sylantro had raised over $125M from investors and was now running on fumes (we raised far less before we went public). After the meeting, the board of directors called Jim and me back in and said that they did not see any benefit in the merger and that they would continue to run standalone. We were shocked! We think (and thought at the time) that these West Coast illuminaries couldn’t fathom that this company from Gaithersburg, Maryland had beaten a Silicon Valley firm.

What we did not know at the time was that they told the CEO to get a $100M cash offer for the company and hired an investment banker to help with the process. Funny part was that for about one year when the CEO pitched to potential strategic partners and every time I would get a call saying “you can’t imagine who was here today”. After failing to sell the company, the CEO called me and said, “OK Mike, we need to talk.” We quickly got together and agreed to a deal and signed a Letter of Intent in the summer of 2008.

As we worked through to sign a definitive agreement in September for a much lower number, the world came crashing down in the financial crisis of 2008. I had to call back the Sylantro CEO and explain that I could not complete the deal and we were going into cash conservation mode. He indicated that they were willing to renegotiate, so I flew to California and looked at every expense, every cash payment, so that we could structure a deal with deferred payments. It’s the first time that I have ever had to jump across and negotiate leases, legal fees and even employee compensation. After 10 years and a lot of venture capital — we purchased the company for… well let’s say pennies on the dollar. Jim and I spent a few weeks in California working through all the details, and figuring out how to both make the acquisition cash accretive immediately and maintain their key customers.

Of course, during that year the company was cutting costs and the company was in really bad financial shape — something many of their existing customers did not realize. Some small details — when we acquired the company they were on Release 4.2 and working on a special release 5.0 for BT. We never shipped 5.0 and 4.2 was the last release. Scott and I were not sure we could even compile a whole new release.

The good news was that we were able to maintain those Sylantro customers and help them migrate to BroadWorks. The maintenance stream helped us get to the revenue size needed for us to go public. We closed the acquisition in December 2008, consolidating the UC space.

So what are some of the lessons to be learnt?

First, when you are in a competitive market that looks likely to consolidate, and you are likely to be a consolidator, don’t be greedy or too proud — the Sylantro investors should have sold a year earlier.

Second, sometimes it’s hard to know why two companies have such different outcomes. We both started at the same time, both had a similar vision. Why did BroadSoft thrive and Sylantro struggle? My view is that we focused hard on investing in product, engineering and sales. They spent a lot of money on marketing and branding. You can ask our VP of Marketing Scott Wharton — he needed to be super creative with the budget I gave him. We began by working with entrepreneurs that built their business around our product, they chased whales. We aggressively put money in our bank via sales, they just raised more from investors. Of course it also helped that our platform, BroadWorks, was the best product in the market (and still is!).

Finally, one thing that we learned from many acquisitions is the great people that join your team. By the time we closed this acquisition, the team was small but we were able to get some A+ talent to join our team. For those who joined us, leave a comment!

Since so many people followed this journey, I would love to hear your perspectives and feel free to ask any questions.