3Com Taken Over by Private Equity Firm Bain Capital

Published: October 1, 2007

by Timothy Prickett Morgan

3Com, which is IBM's biggest partner for bringing Voice over IP (VoIP) telephony software to the System i platform, has been acquired by Bain Capital Partners, one of the powerhouses of private equity and venture funding.

Bain Capital and its partner on deal, a Chinese networking equipment manufacturing giant named Huawei Technologies, are together ponying up $2.2 billion for 3Com, which represents a 44 percent premium over the value Wall Street had placed on the company before the deal was announced last Friday morning. Bain Capital is apparently taking an 80 percent stake, and Huawei Technologies will be the manufacturing arm for 3Com when all is said and done; the company already makes gear for the biggest names in telecom.

3Com is the company that Bob Metcalfe founded in 1979 to commercialize Ethernet networking that he helped create at Xerox's Palo Alto Research Center, the birthplace to many of the modern ideas that have gone into the PCs that sit at our desks. 3Com acquired modem maker U.S. Robotics in 1997 for $6.6 billion to try to take on networking giant Cisco Systems, and ultimately had to spin out its Palm Computing unit to appease Wall Street.

3Com posted sales of just under $1.3 billion in its fiscal 2007 ended June 1, up 60 percent, but it has lost money every year for the past five years. In fiscal 2007, 3Com lost $88.5 million, which is a vast improvement over the prior four years, when the company lost $929.4 million.

IBM was not just looking for a boost for the System i when it partnered with 3Com for VoIP. 3Com was very eager to find a large market of 200,000-plus enterprise customers that it could sell VoIP products to as well.

Bain Capital expects to close the 3Com acquisition by the end of the first quarter of 2008. 3Com's board of directors and managers are behind the acquisition, and it is hard to imagine that 3Com shareholders will vote it down.

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