Amid Consolidation, Ixia Opens Its Wallet

By Thomas Rasmussen

Historically, networking test and measurement vendor Ixia (XXIA) has never been much of a shopper. However, that has started to change this year as the Calabasas, California-based company reached for Catapult Communications in June for $105m as well as wrapped up its $44m acquisition of rival Agilent Technologies’ (A) N2X product line earlier this month.

For those keeping track, Ixia’s recent deals represent some 85% of all M&A spending at the company since 2002. (We would note that the pickup in dealmaking, coincidentally or not, has come since a European private equity investor joined the firm’s board and its strategic planning committee in October 2008.) Having recently assumed the role of consolidator, the small-cap vendor ($425m market capitalization) says it still has about $85m in cash after its recent purchases and is still pursuing deals. Who might be next?

One of the growing fields in the space is wireless network testing. Given Ixia’s desire for a larger presence in the segment, we think it could look to snap up a company here. Two interesting targets are privately held Metuchen, New Jersey-based Berkeley Varitronics Systems and Bandspeed of Austin, Texas. As for more traditional targets, we would point to competitors ClearSight Networks of Fremont, California, and Canada’s publically traded EXFO. EXFO currently sports an enterprise valuation of approximately $150m and would almost double Ixia’s revenue. Doubling down on EXFO might not be such a bad idea given that, despite its aggressiveness, Ixia is still relatively small compared to larger players such as JDSU and Spirent (SPM), which could look to do some consolidation in the space of their own.

Ixia’s historical acquisitions

Date announced Target Deal value October 21, 2009 Agilent Technologies (N2X product line assets) $44m May 11, 2009 Catapult Communications $105m January 24, 2006 Dilithium Networks (test tool business assets) $5.1m July 18, 2005 Communication Machinery $4m July 14, 2003 NetIQ (Chariot product assets) $17.5m February 15, 2002 Empirix (ANVL product assets) $5m

Source: The 451 M&A KnowledgeBase

Comments

[NetworkStress]

It’s interesting to note that the company did not make operating profits for some significant time, making its margins from its $200m bank balance. This change in strategy to spend the it's rainy day savings is putting significant pressure on the business to become operationally profitable, in turn that pressure is telling on good will and moral, is that the reasons the majority of M&A fail?

2009 Nov 17 10:39 AM

[milo1230]

Actually, the company made significant non-GAAP (i.e., cash) operating margins in the first 3 quarters of 2008. The recession has impacted their profitability.


On Nov 17 10:39 AM NetworkStress wrote:

> It’s interesting to note that the company did not make operating
> profits for some significant time, making its margins from its $200m
> bank balance. This change in strategy to spend the it's rainy day
> savings is putting significant pressure on the business to become
> operationally profitable, in turn that pressure is telling on good
> will and moral, is that the reasons the majority of M&A fail?

2009 Nov 20 09:04 PM

[milo1230]

The article does not mention the following acquisition:

G3 Nova Technology, Inc.

On February 20, 2004, the Company completed the acquisition of all of the outstanding capital stock of G3 Nova Technology, Inc. (“G3 Nova”). G3 Nova develops and sells Voice over IP test tools for enterprise call centers, communication networks and network devices. This acquisition opens new growth opportunities for the Company by allowing the Company to offer a broader portfolio of products to customers, as well as gain access to new customer segments. The results of G3 Nova’s operations have been included in the consolidated financial statements since the acquisition date.

The G3 Nova purchase price of $9.5 million included $5.5 million in cash, 307,020 shares of the Company’s common stock valued at $3.8 million and legal and other acquisition costs of $207,000. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

2009 Nov 20 09:06 PM

[Thomas R.]

We must have overlooked that deal. We will remedy our records. Thanks Milo.

TR

2009 Nov 23 04:29 PM