Harry Zarek’s family is back together again.
Almost two years ago Zarek broke up the ownership of his company Compugen Systems Ltd. by selling the services division to Norigen Communications Inc. for a reputed $100 million.
Norigen succumbed to bankruptcy last August and late last week Zarek came full circle by buying the services piece back.
But in a sense, Compugen never truly was a house divided. Zarek continued to run the services division after the sale and it continued to operate even after Norigen’s bankruptcy. “”I would look at it not so much as buying back the services business as putting the two businesses together back to the way they were prior to the Norigen acquisition,”” he says.
Compugen was kept at arm’s length, according to Zarek, who saw Norigen more as an investor. “”They didn’t want to merge it with Norigen, they kept it on a standalone basis,”” he says. “”We continued to operate in the marketplace as though it were a single company.””
Zarek says he sold the services division in the first place because he believed there could be a productive marriage between IT services and telecommunications voice and data. “”No one had put them together as a turnkey solution,”” he says.
He says he has had his eye on reuniting Compugen ever since the Norigen bankruptcy, but it was a protracted process of dealing with the banking consortium that managed the bankruptcy and finding new investors. Zarek adds he couldn’t simply pick up the services company at discount; he had to tender his bid along with other interested buyers, whom he didn’t name.
It was hardly a surprise to analysts that that Norigen went under. A turbulent telecommunications market took its toll and the company’s management began to leave. Months before the final bankruptcy, CEO Saied Nadjafi and president Bill Gaines both fled.
“”The convergence idea (of selling combined voice and data solutions) has not been as big as everyone had expected it to be,”” observes Paul Edwards, channels analyst with IDC Canada Ltd. “”I guess that’s what happened to Norigen. If Harry’s still got that (services) piece, hopefully he can parlay that into something.””
Zarek certainly doesn’t have any regrets about his company’s two-year roller coaster ride. In fact, he ultimately benefited, he says. Norigen trained his staff on telecommunications solutions and funded Compugen’s foray into enterprise data storage.
“”If you don’t take any risks, you don’t learn anything,”” he says. “”I think we’ve come out of it learning a tremendous amount about two things: how the telecommunications (industry) works internally . . . and we also understand where telecommunications has a services capability.””
It certainly makes sense to Paul Furtado, vice-president of corporate affairs for Hamilton, Ont.-based Audcomp Computer Systems. “”Everybody’s on single digit hardware margins. Well, that’s not the case on the services side of things,”” says Furtado. “”(Compugen) has been aware of that since they sold off that arm and now they’ve obviously bought it back.””
Audcomp hasn’t made any investment in selling telcommunicatons services because the returns just aren’t there yet, says Furtado. He adds that it’s an even tougher sell outside of big metropolitan areas like Toronto. But it’s a big plus for Compugen that they have that capability at their fingertips, he says, since the convergence market will inevitably mature.
Edwards agrees. Telco services may not yield any immediate returns for Compugen, but it could prove valuable in the longterm. “”A little bit of diversification doesn’t hurt, especically when you’re looking at areas and you don’t know whether they’re going to take off or not. That, I think, is one example,”” he says.
Zarek expects he will have the two halves of his company fully integrated inside of a month.
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