The Ottawa-based backhaul provider said it would position itself for growth overseas through adding 360 employees, primarily in research and development, mainly in Milan, Italy and Shanghai, China.
DragonWave currently has a headcount of 270, after its workforce was reduced by 10 per cent in the past three quarters as the company seeked to slash expenses in the wake of its chief customer, Clearwire, slowing its network buildout.
There will be some harmonizations of employee positions, but a DragonWave spokesperson declined comment on how many and if they would take place in Ottawa when asked by OBJ.
DragonWave will pay €10 million in cash, undertake a share consideration of €5 million and also pay a performance-based earnout.
The company will also assume employee liabilities, meaning vacations and bonuses, of €10 million and pay €5 million for a capital asset lease arrangement.
Part of the transaction will be funded through US$50 million in debt facilities provided by Comerica Bank and Export Development Canada. That will mainly be used for integration and closing costs in the next two quarters, company officials said.
Earnout payments could raise the transaction value by a further €80 million. This would likely happen if the agreement produced a revenue run rate of $100 milion, gross margin of 30 per cent and an operating margin of 10 per cent, officials said.
DragonWave will further become the preferred supplier for the Finnish-based company's packet microwave and similar products. The companies will do technology development together.
Chief executive Peter Allen called the acquisition "both unique and truly transformational for DragonWave" in a phone call with analysts Friday morning.
The takeover, he said, touches on all three planks of DragonWave's diversification strategy that he talked about in a quarterly earnings call this past summer: expanding the company's presence in global markets, increasing its strategic partnerships and undertaking targeted acquisitions.
"The news we announced today clearly touches all three elements of this strategy," he said, particularly since around 99 per cent of Nokia Siemens' revenues come from markets outside of North America, DragonWave's traditional stronghold.
Nokia Siemens has a "very significant presence" in India, where DragonWave has been working to get business through a joint venture. Other key markets include western south Europe, Africa, the Middle East and Asia.
The Ottawa firm will take on responsibility for the Nokia Siemens product line, research and development and management, while Nokia Siemens will maintain its responsibility for solution sales and related services.
The acquisition will allow DragonWave to compete as both an individual seller and an integrator in the global marketplace, spokesperson John Lawlor said in an interview with OBJ following the conference call.
"Sprint, they wanted to use integrators (for its network upgrade), (so) they selected three integrators, Samsung, Ericsson and Alcatel-Lucent," he said as a recent example.
But he added that DragonWave already was a partner with Samsung, and therefore got a small portion of the business.
DragonWave's revenue nosedived by 50 per cent in its last quarterly results, to US$13.6 million, compared with $27.2 million in Q2 2011. Its net loss stood at $9.9 million or $0.28 per diluted share, reversing the $9.7 million or $0.26 per diluted share in profit seen the year before.
The takeover is expected to close early in 2012 and is subject to various approvals, including regulatory approvals. Canaccord Genuity Corp. acted as the sole adviser for DragonWave.
.jpg)
