Aricent has raised a new $60 million round of funding from New York private equity firm Kohlberg Kravis Roberts and The Family Office, an investor in Bahrain. It's also becoming one of the biggest private tech companies in Silicon Valley that nobody knows about.
Aricent was created a couple of years ago as a spin-off from contract manufacturer Flextronics, in a funding led by KKR and Sequoia Capital. The round is an up round, according to the company, meaning the valuation after the close is higher than it was before.
I have to believe that this company is one of the few in the valley that could be headed toward an initial public offering. Having said that, the environment for IPOs is still horrible and the company isn't shedding any light on its profitability right now.
Keith Higgins, vice president of marketing, said that the company has more than 550 customers. It works jointly with Frog Design, the industrial design firm owned by Flextronics, to design software for mobile phones, telecom infrastructure companies, and cell phone service providers. It does everything from testing user interface prototypes on phone users to the billing operations for cell phone services. It has a product portfolio of more than 125 products which it licenses to customers.
The pressure on carriers and others in the cell phone ecosystem has been growing, leading to more outsourcing. The company's revenues have grown from $238 million in its 2006 fiscal year to $382 million in its 2008 fiscal year. Based on its first quarter's results, the company is on a run rate to hit $470 million in its current 2009 fiscal year, making it one of the biggest private tech companies in Silicon Valley. More than 400 million handsets have shipped with Aricent's software.
The company competes with other big companies that offload core services in the $100 billion telecom software and services market. The list of rivals includes Accenture, Infosys, IBM, Sasken, Tech Mahindra and Wipro.
As new platforms such as Android and WiMax arrive and make mobile phone software more challenging, Aricent expects its business to grow. The Bahrain investor is participating in part because Aricent will expand its operations in the Middle East. Higgins said the latest funding is not an alternative to an initial public offering and he noted, "It's not such a bad thing to be private these days."
The new round consists of two parts: a $35 million tranche and a $25 million tranche, for a total of $60 million. Previous investors Flextronics and Sequoia did not participate. The company says it will use the money to increase its engagements with more customers.