Telecom Technology: Winter 2025 Report

While performance was not as strong as in our fall report, the FOCUS Telecom Technology Index (TTI) still had a solid three-month period with a gain of 7.5%. This meant the sector’s return outperformed the 6.0% gain in the S&P 500 over the corresponding time frame, but it was not as strong as the 8.9% gain in the NASDAQ. The TTI is still well ahead of both of the major indices when looked at over the 12-month period. The TTI gained 29.7% over the past year, which compares favorably to both the 13.5% gain in the S&P 500 and the 21.6% gain in the NASDAQ. Sector multiples are also meaningfully higher than in the year-ago period. The sector revenue multiple increased from 3.4x to 4.0x, while the sector EBITDA multiple jumped from 18.3x to 21.4x.

The Broadband Access and Transport sub sector was far and away the TTI’s best performing sub sector over the past three months as it delivered a jaw dropping 83.5% gain. This gain was almost entirely due to the performance of CIENA, which more than doubled over the period. The sub sector is also up nearly 150% for the full year period. The Test and Measurement sub sector also enjoyed a very strong performance as it gained 47.3% over the past three months. Performance in this sub sector was far more even, with all of the companies delivering strong returns. At the other end of the spectrum, the 16.8% drop in the OSS/BSS Software sub sector made it the only sub sector in the TTI to deliver a negative return over the past three months. Even though CSG Systems shot up 22.8% in the wake of its M&A announcement, double-digit losses at Amdocs, Lumine Group, Synchronoss and Tecnotree still dragged the sub sector into the red. The sub sector is also down 10.6% for the full year, making it the only TTI sub sector with a negative year-over-year return.

We noted that M&A activity in the Telecom Technology sector cooled down somewhat, with only 12 transactions over the past three months. While the total number of deals was relatively low, announced transaction dollar value was still high, coming in just shy of $6.5 billion. The largest transaction for the period was the $3.4 billion acquisition of cloud-native observability and monitoring software vendor Chronosphere by Palo Alto Networks. Not far behind in terms of dollar value, NEC Corporation acquired telecom billing specialist CSG Systems for $2.8 billion. CSG Systems was not the only OSS/BSS Software company to announce that it would be abandoning the public markets, as Optiva also announced that it would be acquired by Qvantel for roughly $110 million. We also noted that CIENA picked up data center focused interconnect vendor Nubis Communications for $270 million. In the final transaction that we will specifically highlight, White Label Communications expanded its offerings for the MSP space with its pickup of network monitoring and WAN optimization vendor Intellitrex.

The year-to-date tally for M&A activity in the Telecom Technology sector now stands at 54 transactions with a total announced transaction dollar value of $19.8 billion. This means that the sector is on a very similar trajectory with respect to M&A as we saw last year, with fewer total transactions but enough larger deals to keep announced transaction dollar value strong.

We were fortunate to have four transactions with announced multiples this period. The clear outlier was the Palo Alto Networks acquisition of Chronosphere, which was done at an eye-popping multiple of 20.9x revenue. The other three deals had much more down-to-earth multiples. Two of these three transactions were in the OSS BSS Software sub sector. The NEC Corporation acquisition of CSG Systems weighed in at 2.3x revenue and 13.5x EBITDA. The Qvantel purchase of Optiva actually had a slightly higher revenue multiple of 2.4x, despite the fact that Optiva was generating negative EBITDA. In the period’s final transaction with an announced multiple, HMS Networks acquired the Industrial Communications business of Molex at a multiple of 0.7x revenue.