May 24, 2005 Germantown, MD, and San Jose -- JDS Uniphase yesterday entered into a definitive agreement to acquire privately held test and measurement company Acterna for $760 million. According to JDS Uniphase representatives, the acquisition will accelerate the company's path to profitability as well as enable it to tap into the lucrative market for triple-play testing, reports Senior News Editor Meghan Fuller.
Before the Acterna acquisition, JDS Uniphase's test and measurement division represented just a single-digit percentage of the company's overall communications business. But that is about to change, says David Gudmundson, JDS Uniphase's senior vice president of corporate development and marketing.
"Among other things, Acterna's participation in the triple-play area of voice, video, and data--particularly with the opportunities in the optical area and especially FTTH products--absolutely drew us," says Gudmundson.
"Our FTTx business is a growing and healthy business, and our fiber-optic business has performed very well over the last year," adds John Peeler, president and CEO of Acterna. "In addition, we really test all the different aspects of IP services or triple- play services over the broadband network, from video to VoIP to data services. We're working with network operators both in the US and in Europe on triple-play service delivery and broadband networks. There's a lot of growth there for us, and we're excited about the future."
The acquisition also is expected to accelerate JDS Uniphase's path to profitability. Acterna may not have much cash on hand ($75 million), but it has a sound business model that has led to double-digit growth in the past year, says Peeler. Based on preliminary results for fiscal year ended March 2005, Acterna's revenue exceeded $440 million with gross margins over 50%. The company also experiences high revenue per employee.
"Acterna has a leading share in the communications T&M market," maintains Galen Wampler, president of industry research firm Prime Data (Carlsbad, CA). "The industry addressed by Acterna represents a $2.6 billion market expected to grow at a five to ten percent compounded annual growth rate over the next five years," he says. As a result, JDS Uniphase expects to double the size of its addressable market to over $5 billion.
According to Gudmundson, the companies' customer bases are very complimentary. "Acterna has a strong presence on the end user, on the service provider in telecom and cable, whereas JDSU focused more on the system manufacturers that actually sell to the customers that Acterna sells to," he says. Together, the companies will have 4,000 customers worldwide.
For its part, Acterna had been pursuing either an IPO or M&A strategy, reports Peeler, in part because its investors were pushing a liquidity event. "But more importantly, we needed a source of capital to continue to grow the business to give us some opportunity to do some additional acquisitions," he says. "We've been really driving the company to get to a strategic outcome that would enable us to do both of those things."
Moreover, he says, "there's a tremendous amount of optical technology in JDSU that we think will benefit Acterna. And there's a tremendous amount of world-class testing technology at Acterna that I think can benefit JDSU."
While JDS Uniphase and Acterna stand to benefit from the acquisition, both are quick to note that their customers will benefit as well. "If you think about the product and the network architecture, our combination of JDSU and Acterna addresses network deployments at the physical layer all the way up through the stack," says Gudmundson. "So from the point of view of next-generation networks and sensitivities to those networks and their requirements, we feel like the combination is definitely much stronger. Together, we are much better equipped to enable the deployment of those types of networks."
Acterna, which employs approximately 1,770 employees worldwide, will become JDS Uniphase's Communications T&M Group, under the direction of Peeler.
--MJF