Reliance to purchase Yipes in the US

In its largest acquisition so far, Reliance Communications pays $300 million for the US ethernet and application delivery services company.
Anil AmbaniÆs Reliance Communications, India's second-largest mobile services provider, has announced that it will acquire US-based Yipes for $300 million cash.

Yipes provides ethernet and application delivery services to customers in mainly the financial, legal, government and healthcare industries. For example, Yipes is the leading direct communications provider to the New York Stock Exchange, Chicago Mercantile Exchange and Nasdaq, and inter-connects with multiple market participants and intermediaries.

Yipes was started in 1999 and today has around 1,000 clients including Verizon and NTT. It has a network of 22,000 kilometres of optic fibre across 14 metropolis cities in America and is also present in London, Hong Kong and Tokyo.

Ethernet is the fastest growing segment of the data communications market. Independent research forecasts the market will grow at a 30% compound annual growth rate for the next four years to top $25 billion worldwide.

Financial data for Yipes, which is closely held, was not disclosed but Anil Ambani told media that Yipes had operating margins of 55% and is cash positive.

Yipes has raised $93 million of private equity in tranches since 2002 from Norwest Venture Partners, JPMorgan Partners, the Sprout Group (a venture capital affiliate of Credit Suisse) and Crosslink Capital.

Reliance Communications is Anil Ambani's flagship company. It has a customer base of over 35 million including over one million individual overseas retail customers and numbers 600 Indian and 250 multinational corporations among its corporate clients. The company has established a pan-Indian wireless and wireline digital network covering over 8,000 towns and 300,000 villages.

Reliance Communications earlier acquired FLAG Telecom, which owns an undersea cable system of around 50,000 kilometres spanning Asia, Europe, the Middle East and the US, in 2003 for around $200 million. The Yipes acquisition will be synergetic with FLAG and Yipes will operate as a unit of FLAG. Reliance hopes to, via the acquisition, bring ethernet services to 40 new countries. Yipes is the largest acquisition by Reliance Communications to date.

ôWe see enormous potential to expand Yipes coverage in the US and to globalise Yipes service by leveraging our customer relationships and network reach,ö says Anil Ambani, Reliance Communications chairman. ôWe expect this acquisition to significantly enhance the growth rate, profitability and returns of our global data business."

Reliance Communications shareholders were bullish on the acquisition and the share closed trading at a new high of Rs573.55 ($14.25) yesterday.

Neither Reliance Communications nor Yipes responded to requests for comments.

Reliance Communications was advised by group company, Reliance Technology Ventures.
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