3Com Attracting Potential Buyers

July 18, 2007, 02:20 PM EDT

3Com has attracted several potential buyers, including two private-equity firms and rival Nortel Networks, according to reports.

The Wall Street Journal is reporting that private-equity firms Silver Lake Partners and Bain Capital have approached 3Com in recent months with potential buyout offers. Nortel also may be interested in the company, according to reports.

A spokesman for 3Com declined to comment. The two equity firms and Nortel could not be reached for comment.

3Com is the latest VoIP player to attract Silver Lake Partners' attention. Avaya last month unveiled its plans to go private via an $8.2 billion deal with Silver Lake Partners and TPG Capital. Nortel was also reported to be a suitor for Avaya.

Some 3Com partners said they hope the company doesn't get snapped up.

"I think I would prefer them not to be sold," said Jeffrey Schmidt, president of SOTA Technologies, a 3Com partner in Coshocton, Ohio.

"They have put a lot of effort into building the business, not just the numbers on the outside but in building the infrastructure so they are poised for growth," Schmidt said.

Solution providers said that if 3Com were to be sold, they would not want Nortel to be the buyer because they are wary of the turmoil Nortel has seen in recent years over finances, an accounting scandal and executive turnover.

"I would almost prefer a private-equity group vs. someone with baggage like Nortel, if that's the way they're going to go," said Glenn Conley, president and CEO of Metropark Communications, a 3Com partner in St. Louis.

If 3Com is sold to a vendor, better suitors come to mind, said Shaun Steel, sales manager at Valcom, a solution provider in Salt Lake City, Utah.

"I would like for a Juniper [Networks] or Foundry [Networks] to buy them," he said.

NEXT: 3Com not matching partners in financial success

Still, partners like Schmidt and Conley noted that 3Com doesn't seem to be grooming itself for a sale.

"They are spending a lot of money bringing in new engineers. We're seeing a massive, concerted effort to clean up the problems [they've seen from] outsourcing. They're bringing a lot of it back in-house," Conley said. "If they were out trying to hawk themselves, you would think they would be spending more money on marketing vs. trying to fix internal problems."

Schmidt, Conley and Steel all report that 3Com sales at their respective companies are growing.

"We're on target for a banner year with 3Com," Conley said, adding that 3Com sales are tracking for 80-percent growth compared to last year, primarily based on VoIP sales.

SOTA expects 30-percent growth in 3Com sales this year, driven by VoIP, security and core networking solutions, Schmidt said.

Valcom has built a growing, profitable 3Com practice, driven primarily by sales of 3Com switches and wireless gear to state government accounts, Steel said.

3Com itself, however, can't paint as rosy a financial picture as its partners. The Marlborough, Mass.-based company last month reported a fiscal 2007 loss of $88.6 million on revenue of $1.27 billion. While revenue is up and losses narrower compared to the previous year, the company has not reported a bottom-line profit for several years.

The company last month also said it plans to take its TippingPoint security subsidiary public by filing for an IPO later this year. That move came two-and-a-half years after 3Com shelled out roughly $430 million to acquire TippingPoint and its lineup of intrusion detection and prevention products in January, 2005. TippingPoint has largely been operating independently under the 3Com banner since then.

3Com in March paid $882 million to buy Chinese networking vendor Huawei Technologies out of their Huawei-3Com joint venture. Now 3Com owns 100 percent of China-based H3C. Silver Lake, Bain Capital and TPG Capital bid against 3Com for Huawei's share of the joint venture.