B.C. softphone company buys NewHeights

The ink is barely dry on a multi-million deal combining two Canadian softphone developers but already company’s new head is looking for another acquisition.

Greg Pelling, CEO of Vancouver’s CounterPath Solutions Inc., said in an interview that shifting the company to a more visible stock exchange within the next 60 days and expanding its portfolio are among his priorities. “Our plans are to build out a far more comprehensive offering into the marketplace,” he said.

Pelling understands how to move fast. It was only five months ago that he was lured by Mitel chairman Terry Matthews to leave Cisco Systems and become president and CEO of NewHeights Software Corp., an Ottawa developer of enterprise softphones for Mitel and Nortel Networks customers. NewHeights was partly owned by Matthews’ private investment company, Wesley Clover and co-founded by his son Owen.

NewHeights had been thinking for some time of licensing technology of CounterPath, a maker of softphones for consumers marketed through carriers including Vonage, AT&T and British Telecom. Instead, the companies made a deal: CounterPath, which trades on the Nasdaq over-the-counter market, would buy NewHeights, with Matthews investing some $6 million into the company to become its biggest shareholder and becoming its chairman.

Owen Matthews and CounterPath founder, chairman and CEO Mark Bruk are now vice-chairmen of the merged firm. The result of the complicated deal will see CounterPath with some $10 million of new cash or cash commitments involving the money from Wesley Clover, NewHeights, and CounterPath.

Neither company was profitable, Pelling said, but both have high-profile customers. “We see the market that CounterPath has grown up in as largely untapped. Their applications that have been commercialized are just starting to go through the end of their first round of trial deployments, so their big revenue hit from existing contracts has yet to occur.

“On the NewHeights side, a lot of the investment was made into future technologies. Some of the things we can do right now, nobody can do in the marketplace,” Pelling said.

“We’ve got access to technology that can monitor what’s being downloaded, the type of the file, the size of the file, who’s been authorized and the rules applied to it on a USB port.

Bruk said the new cash in the vault serves two purposes: to assure carriers that CounterPath is financially stable and to fund growth including building a VAR channel. Just as important, Bruk added, is having Terry Matthews’ name at the top of the organization chart.

“To have him agree to be part of CounterPath really puts the stamp of approval on the company,” he said. While CounterPath is known among mid-level managers of telcos and cable companies, Matthews can bring the company’s name to C-level executives, he said.

Ronald Gruia, a telecom industry analyst with Frost & Sullivan in Toronto, said the deal could be timely.

Telcos and service providers worry that Skype and Google could issue their own softphones and carry away customer loyalty, he said, and carry away possible revenue if the softphone carries ads or links to other companies’ services.

What providers want is a softphone with a “sticky interface” with their brand name that will keep customers with them, Gruia said.

“I think as carriers start wanting to deploy personal communications managers that will allow users to build an affinity with their brand there is opportunity for this market to explode,’ he said.

CounterPath was founded in 2002 as Xten Networks by Bruk and two others to create Windows softphones for Internet service providers like Vonage. A Macintosh version was added later. Its products include the Bria voice and eyeBeam video VoIP softphones, but it also has a software development kit that NewHeights had been thinking of licencing for a year. Eventually the companies decided that coming together was a more sensible idea.

Among the advantages is that technology from NewHeights’ Desktop Assistant and Quick Conference audio conferencing software can be added to CounterPath products for telcos, said Bruk, who are interested in offering softphones with social networking capabilities. Meanwhile with NewHeights’ sales team, CounterPath can accelerate its plans to offer products to telecom integrators selling Mitel, Nortel, Alcatel and other PBX systems to organizations.

“Being able to bring on a team of people that have worked together [from NewHeights] is not easy to do,” Bruk added. However, NewHeights software development team is based in nearby Victoria.

It will also be able to fund development of a softphone for handhelds so carriers can offer a solution for many devices, a possibly buy other softphone makers. In one way, the deal allows NewHeights to go public. Bruk also said it also accelerates his plans to take CounterPath onto the Nasdaq small cap markets.

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