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Why Enablence is acquiring Wave7 Optics


Enablence Technologies, a four-year-old Canadian component vendor, has agreed to acquire fiber access equipment vendor Wave7 Optics.

Enablence will pay $10.5 million and 2,078,385 shares for Wave7. With Enablence’s stock currently trading around $1.60 a share, the total purchase price would approach $14 million.

An unusual act of vertical integration, Enablence hopes to lower the cost structure of Wave7’s gear by using its own transceivers—one of the costliest parts of fiber access equipment—in Wave7’s gear.

“The optical block represents the most significant cost contributor to the [optical network terminal], and the Enablence [planar lightwave circuit] technology solution offers a substantial opportunity for cost reduction,” said Jim Farmer, Wave7’s chief technology officer, in a prepared statement. “Integrating Enablence’s PLC technology directly into the Trident7 system provides us with further competitive advantage.”

Wave7 has not yet used Enablence’s transceivers in its gear, but the two companies had recently begun a customer relationship, according to Arvind Chhatbar, Enablence’s chief executive officer.

“Forward integration is not a bad thing,” he said, adding that he doesn’t foresee any conflict between the Wave7 acquisition and Enablence’s other customers in the fiber access space that might also be Wave7’s competitors.

The timing of the deal was dictated largely by the fact that Wave7 was getting acquisition offers from other companies, Chhatbar said. If the two had not struck a deal, Enablence might have lost the opportunity to one of several other active bidders, he said.

Among the selling points of Wave7’s business, he said, was that very little of its revenue comes from the competitive North American market for fiber access gear. Wave7’s revenue comes mostly from Europe, New Zealand and the Caribbean, he said.

In 2006, Wave7 had said 80% to 85% of its sales came from North America but that it was hoping to focus much harder on driving international sales. Among its customers is the Jackson Energy Authority, which has built a sizeable municipal fiber network in Jackson, Tenn.

As a private company, Wave7’s financial data is unknown, but Infonetics Research estimates its 2007 revenue to be less than $4 million, with most of that coming from North American independent telcos. Mark Showalter, Infonetics` directing analyst for broadband networks, said today’s deal clearly offers Enablence a way to branch out, but, he added, “For Wave7, it’s not clear how this will necessarily benefit their customers.”

The two companies expect the acquisition to close mid-May and begin selling equipment containing Enablence’s flagship transceiver a year later.

Wave7 and its Trident brand could be changed following the acquisition, Chhatbar said, declining to elaborate, as the deal has not yet closed.

Enablence has been selling its transceiver—which could be used in Wave7’s gigabit passive optical networking gear as well as its Ethernet PON and point-to-point active Ethernet gear—since 2006. The company claims about $15 million in annual revenue and about 100 employees, while Wave7 employs about 70, Chhatbar said.

Wave7 launched in early 2003 and added a GPON product last summer. In late 2005, the vendor had collected $86.5 million in funding.


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