M&A Alert - February 11, 2010
JDS Uniphase Buys Agilent’s Network Test Business
Transaction Overview
On February 11th, 2010, JDS Uniphase (NASDAQ: JDSU) agreed to acquire Agilent’s Network Communication Solutions Test Business for $165mm. The transaction is expected to close in June.
Target Description
Agilent’s Network Solutions Test business provides network communications test and measurement services for 3G, WiMax, Bluetooth and emerging LTE (4G) networks. Customers include wireless service providers and network equipment manufacturers. The business being acquired includes the following business lines:
1) Service Assurance, which optimizes network deployment, management and operation as well as offers troubleshooting services
2) Network Protocol Test, which provides network protocol analyzers for network interoperability and integration during lab and field testing
3) Wireless Drive Test, which enables network test-drives and measures performance of network coverage
Agilent’s Network Solutions Test will be integrated into JDS Uniphase’s Communications. The company has 700 global employees in the U.S., U.K. and Asia.
Buyer Description
About half of JDSU’s revenue comes from communications test and measurement solutions, mainly focusing on wireline (Ethernet and core) network service capabilities, for telecommunications service providers, cable operators, and network equipment manufacturers. JDSU provides test tools, platforms, and services for broadband network deployment (including DSL, cable network and digital video broadcasts) as well as optical transport and storage networks. In addition, JDSU offers optical transmission products and multilayer security / optical coating technologies that enable protection against data diversion and data counterfeiting. Tom Waechter, CEO, was the key executive sponsor of the transaction. JDSU was founded in 1979 and is headquartered in Milpitas, California.
The Agilent unit being acquired had annual revenue of $162mm for its fiscal year ending October 31, 2009. Approximately 70% of the revenue was generated from its Service Assurance line. The remaining 30% was divided equally between Network Protocol Test and Wireless Drive Test lines. Similar to JDSU, the business unit had operating margins of between 2% – 3%.
| Purchase Price (all cash): | $165mm |
| Revenue Multiple1: | 1.0x |
Note: 1) Based on annual revenue of $162mm, as disclosed on the transaction announcement conference call
Strategic Rationale
Agilent’s Wireless Network Solutions Test services nicely complement JDSU’s existing Test and Measurement services. With Agilent’s capabilities, JDSU will be able to extend its wireline service offerings to include wireless (LTE) test and measurement services for its wireless carrier and network equipment manufacturer clients. These capabilities are crucial for carriers seeking to upgrade from 3G to 4G capabilities in the midst of increasing demand for high-bandwidth data, which is partly driven by increased usage of smartphones and netbooks.
Agilent has not been particularly focused on the test market, and last year sold its N2X test business to Ixia.
Architect Partners’ Observations
JDSU has been actively looking for acquisitions in their Test BU for over a year, and last October Light Reading mentioned Agilent as a leading player in this space. This transaction represents another example of opportunities created by the shift to LTE made in the telecommunications industry. Other recent comparable transactions that are driven by the 4G upgrade include Tellabs acquiring WiChorus (a 4G network equipment provider) in October 2009, Cisco acquiring Starent Networks (a high bandwidth network equipment provider) at 8.5x revenues in October 2009, and Ericsson acquiring Nortel’s North America LTE Wireless Assets in July 2009 at 0.6x revenues.
According to JDSU, more than 50 wireless operators have announced plans to deploy LTE and leading network equipment manufacturers have already added or plan to add new LTE capabilities. Adding LTE network test and measurement services, which is estimated to expand JDSU’s market by over $800mm, will allow JDSU to now be the largest player in the segment.