On Friday, DragonWave, Inc. (Ottawa, Canada) announced plans to acquire Nokia Siemens Networks' (Espoo, Finland) microwave transport business, including its associated operational support systems (OSS) and related support functions. Under the deal, Nokia Siemens Networks (NSN) will retain responsibility for its existing sales and associated services for microwave transport, while DragonWave will be responsible for the product line, including R&D, product management and operations functions.
As well as acquiring the business, DragonWave will also become the preferred supplier to Nokia Siemens Networks packet microwave and related products, and the companies would jointly coordinate technology development activities.
DragonWave will pay NSN approximately $13.5 million in cash and $6.8 million worth of DragonWave common shares. DragonWave will also assume employee liabilities of approximately $13.5 million and will enter into a capital asset lease arrangement for approximately $6.8 million.
According to Alan Solheim, vice president of corporate development at DragonWave, the deal puts the company in an ideal place to break into new markets.
“We’ll get access to customers that want a complete end-to-end service, and quite frankly, as a pure play microwave provider we weren’t able to get access to them before,” says Solheim. “If you look at the market map where NSN is strong and we are strong, it’s quite complimentary. DragonWave is strong in North America, moderately strong in the Middle East and Africa, NSN is quite weak in North America, quite strong in India, Western Europe and moderately strong in the Middle East, Africa, CALA and some parts of Asia. So it really is a good overlap between the two companies.”
In addition to a geographic benefit, DragonWave expects to increase its quarterly revenue by 4 to 5 times, according to Solheim. In the last few quarters DragonWave has averaged between $15 million and $20 million in revenue, largely due to its dependence on Clearwire (Kirkland, Wash., U.S.A.), who has slowed its spending over the last few quarters. Once the acquisition is compelte, DragonWave expects to make quarterly revenue of $100 million, says Solheim.
According to Solheim, an unintended benefit of the acquisition has to do with its new line of “Avenue” products for microcell networks.
“DragonWave provides backhaul, but we are not a base station provider. So, the Avenue is designed to work with other peoples basestations.,” says Solheim. “One of the things this allows us to do, is it gives us the opportunity to work closely with NSN’s base stations and their developments on micro cells and picocells to be able to develop whole solutions.”
The terms of the agreement also includes for sales performance based earn-out payments to be made following closing. The hardware and basic software earn-out period runs for 18 months following closing and the earn-out period on application software upgrades runs for four years following closing. The earn-out payments could raise the value of the transaction by approximately $108 million.
DragonWave expects to finance the transaction through a combination of cash on its balance sheet and increased debt facilities provided by Comerica Bank and Export Development Canada, says the company.
As part of the proposed acquisition, the companies expect approximately 360 Nokia Siemens Networks employees, mainly based in Milan, Italy and Shanghai, China, to transfer to DragonWave.
The companies aim to complete the planned acquisition and supply agreements in the first quarter 2012.