APRIL 3, 2008 -- EXFO Electro-Optical Engineering Inc. (search for EXFO) has signed an agreement to acquire all the shares of Brix Networks, provider of open and extensible converged service assurance.
Consideration to be paid consists of $28.5 million in cash and an additional earn-out based upon the achievement of bookings levels exceeding $16 million in the 12 months following the closing date of the transaction. Total purchase price could reach $37.5 million, including a maximum earn-out and other acquisition-related costs. The deal is expected to be negative to earnings for the remainder of fiscal 2008, neutral in fiscal 2009, and accretive in 2010, excluding stock-based compensation costs and after-tax amortization of intangible assets.
The company will be renamed EXFO Service Assurance Inc.
Brix Networks, a privately held company headquartered near Boston, brings to EXFO expertise in IP service assurance technology that was developed through substantial R&D investments in the last nine years. The company's distributed, probe-based offerings proactively monitor next-generation, converged IP networks to assure that voice, video, and data services are delivered with the quality of service (QoS) and quality of experience (QoE) demanded by users.
Brix Networks offers comprehensive VoIP and IPTV testing, 24 hours per day, seven days per week, across the three most vital areas that impact the success of a real-time service: signaling quality (signaling path performance), delivery quality (media transport performance) and content quality (overall quality of experience), say Brix representatives.
Brix Networks' offerings are used by telecom companies, mobile service providers, and cable TV operators to guarantee the successful launch and profitable, ongoing operation of their VoIP, IPTV, and managed services, while large enterprises deploy its offerings to achieve successful rollouts and widespread organizational acceptance of their new, real-time IP applications.
Frost & Sullivan estimates that the VoIP test and monitoring market will grow from $379 million in 2006 to $1.9 billion in 2013 for a compound annual growth rate (CAGR) of 25.7% during that period. It also forecasts that the IPTV test and monitoring market will grow from $74 million in 2006 to $725 million in 2013 for a CAGR of 38.5%. Brix's addressable market is currently estimated at $150 million.
"The automated, real-time service assurance solutions provided by Brix Networks are increasingly becoming mission-critical for network service providers (NSPs), given the non-deterministic nature of IP networking and because the growing number of consumers adopting IP services is too widespread for NSPs to rely on expensive truck rolls to handle such tests," notes Germain Lamonde, EXFO's chairman, president, and CEO.
"This strategic acquisition represents another step in EXFO's long-term growth strategy, enabling us to expand share of wallet with NSPs through Brix Networks' deep technological advantage, global customer relationships, and strong market presence in the fast-growing service assurance market," Lamonde continues. "We believe that network monitoring is the next logical step in our strategic plan, given the 64% CAGR in the last two years of our protocol test business, which focuses on next-generation IP networking. The combination of Brix Networks, recently-acquired Navtel Communications, and EXFO will create a new force in the test and monitoring marketplace with full technology lifecycle coverage for NSPs."
Brix Networks posted sales of $15.2 million, a gross margin above 70% and a GAAP net loss of US$6.8 million in calendar 2007. EXFO plans to retain Brix Networks' management and technology teams totaling about 85 employees, while some administrative and operational activities will be consolidated. Revenue from Brix Networks will be recognized as part of EXFO's protocol test activity, under its Telecom Division, once the transaction closes, which is expected later this quarter.
The acquisition has been approved by the board of directors of both companies, but is subject to customary closing conditions.
"We are delighted to join forces with a market leader like EXFO in the telecom test and measurement industry," adds Tom Pincince, president and CEO of Brix Networks. "Given our unique value proposition in the IP service assurance industry and EXFO's leadership on the test and measurement side with NSPs, the combined entity should be a significant player in the test, measurement, and service assurance industry."
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