CANTON, Mass. -- Network Engines, Inc. (NASDAQ: NENG), a leading provider of storage and security server appliance products and services, today announced it has entered into a definitive agreement to acquire privately-held Alliance Systems, Inc., a leading provider of server appliances and computer infrastructure supporting telecommunications and enterprise communications solutions. Valued at approximately $40 million, the transaction will be funded through a combination of approximately $35 million in cash, which includes the payment of certain of Alliances debt obligations, and approximately 2.7 million shares of Network Engines common stock.
Based in Plano, Texas, Alliance Systems provides server appliances and enhanced support services for wireless, VoIP, contact center and enterprise communications solutions. Similar to Network Engines, the majority of Alliance Systems revenue comes from services to OEM customers. In its fiscal year ended December 31, 2006, Alliance Systems had more than 250 active customers, only two of which contributed 10% or more of revenue, one at 15% and the other at 10%. For the 2006 fiscal year, revenue was approximately $102 million and operating income was approximately $3.2 million. For the nine months ended September 30, 2007, Alliance Systems had unaudited revenue and operating income of approximately $79 million and $2.0 million, respectively. Its largest customer contributed only 10% of its revenue for the nine-month period.
Through the acquisition of Alliance Systems, Network Engines enters new vertical markets and anticipates leveraging a broader range of capabilities to address market needs for converged solutions. Network Engines also expects to realize economies of scale based on similarities between the two companies business models, their compatible approach to development of system solutions, and their complementary focus on OEM customers. Furthermore, it is expected this transaction will diversify Network Engines customer base and accelerate its progress toward achieving its financial objectives.
We are pleased to partner with an established, profitable company that is highly complementary to Network Engines business, said Greg Shortell, President and Chief Executive Officer of Network Engines. Alliance Systems strong position in telecommunications complements Network Engines expertise in storage and security. These markets are experiencing a convergence of technologies, which creates new applications. We believe that Network Engines is well positioned to meet the industrys needs in this exciting growth opportunity, and expect the acquisition will allow us to better serve customers, while creating significant value for our shareholders.
Network Engines Inc.