Enablence climbs food chain with Wave7 Optics acquisition

APRIL 15, 2008 By Stephen Hardy -- Enablence Technologies Inc. (search for Enablence), which has hitherto focused on developing transceiver technology, has agreed to buy one of its potential customers. The Canadian supplier of planar lightwave circuit (PLC)-based components has signed a definitive agreement to acquire all of the outstanding shares of Wave7 Optics Inc. (search for Wave7). Wave7 makes FTTH equipment.

Enablence will acquire, through a wholly owned US subsidiary, all the shares of Wave7 for an aggregate purchase price of US$10.5 million and 2,078,385 common shares of Enablence. The companies expect all conditions of the agreement will be fulfilled prior to May 15, 2008.

Wave7's flagship product is a universal access platform, called the Trident7, that supports both GEPON and GPON applications as well as point-to-point Ethernet. The company boasts more than 100 customers worldwide. Recently announced customers include Lexcom Communications, a local service provider in Davidson County, NC; Servei de Telecommunications d'Andorra; and SPIE Communications, a municipal service provider in Paris.

According to Arvind Chhatbar, Enablence CEO, the jump from components supplier to systems house does not reflect a change in the company's strategy. "I think we indicated that we were going to embark on an integration strategy," he explains. "What you saw in the past [the company previously acquired photodetector supplier Albis Optoelectronics AG and metro and long-haul component developer ANDevices Inc.] was some of the backward integration. Now you're seeing a little bit of the forward integration, largely in an area that is very close to us."

Nor is this a case of having to acquire a systems house to ensure that there's a customer for Enablence's FTTH transceivers, Chhatbar insists. Enablence will continue to develop and market FTTH transceivers to systems houses, he says. While the company hasn't announced any customers, Chhatbar says they do exist. "I think if you call us in two or three months, we'll be able to give you more," he says.

He also isn't concerned that his FTTH equipment customers will be concerned about competitive conflicts. "Some of the areas that Wave7 [sells in] are areas that others don't go -- they're niche areas and stuff like that. So we don't see that as competition." Those "niche areas" include a preponderance of its sales being in Europe, the Caribbean, and countries like New Zealand, Chhatbar says � in other words, outside of Asia and North America. Rather than trying to grow Wave7's business in these two major markets ("They do have some North American things, but it's not as extensive," according to Chhatbar), "I think our intention is to consolidate where they currently are," he reveals," and then see how things play out before making significant changes to the current core strengths."

In fact, the acquisition will increase Enablence's ability to serve FTTH systems developers, Chhatbar asserts. "What this does for our company [is provide] a better understanding of the requirements for some of our customers in terms of placing the transceivers in a system by being part of that particular process," he says. "It actually positions us in a better situation for addressing the needs of the various vendors."

While he says that the development of an integration strategy is an ongoing process, Chhatbar says he could envision Enablence evolving into a structure that would comprise a components or device division and a networks division.

Chhatbar also indicates he's open to continuing the company's M&A momentum. "We think that is something that needs to be done for a vibrant optical industry," he concludes, adding that it's "too soon to tell" whether such activity could come at the components or systems level.

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