EXFO Raises Guidance on Close of Brix Acquisition

EXFO Electro-Optical Engineering Inc. completed its $28 million acquisition of Brix Networks this week and as a result raised its sales guidance a couple of million dollars for the quarter ending May 31.

In addition to the $28 million, EXFO agreed to an additional growth-incentive earn-out based on the achievement of bookings levels by Brix that exceed $16 million in the 12 months following this week’s close of the transaction. The total purchase price could reach $37.5 million.

Despite an upward trend in expected sales, the overall deal is expected to be negative to EXFO’s earnings for the remainder of fiscal 2008, neutral in fiscal 2009 and accretive in 2010.

With this acquisition, EXFO broadens its transport and installation and maintenance test and measurement portfolio to include service assurance. OSS Observer sees the global service assurance market growing from the $2.19 billion it was in 2007 to $3.03 billion by 2011. And Frost & Sullivan estimates that the VoIP test and monitoring market alone will grow from $379 million in 2006 to $1.9 billion in 2013 while IPTV test and monitoring grows from $74 million to $725 million.

This acquisition will help Brix address the wider market while giving EXFO the end-to-end, quality-of-experience test capabilities being demanded my service providers today.

Brix has a distributed, probe-based solution that proactively monitors next-generation, converged IP networks for service quality. It complements EXFO’s other acquisition earlier this month of Navtel Communications, which extended EXFO from its optical transport base to data communications and access testing.

EXFO was founded in 1985 and is based in Quebec City with manufacturing and R&D facilities in Montreal and Toronto. The company says it commands an estimated 25.5 percent market share for portable optical test solutions.

“It was key to our strategic planning that we add the ability to be there not only in the deployment and post deployment phase, but also to extend our reach and start monitoring services,” said Étienne Gagnon, vice president of product management and marketing at EXFO.

Gagnon said EXFO had been looking to expand in this direction for the last two years. “It was key for us to pick a best-of-breed solution and Brix was the obvious choice for service assurance,” he said.

Gagnon said it is now imperative for a test and measurement company to have service assurance capabilities. He also said when it comes to new, advanced services that the lesson learned in the deployment phase can and should be extended to ongoing service assurance.

“It is a natural next step,” he said. “And we aren’t the only ones going in that direction.”

Brix will remain intact, including the company leadership. The company will become the EXFO Service Assurance division.

“Both our customers are looking for consolidated offerings where they can have a single provider for R&D, manufacturing and I&M all the way through the lifecycle of a service,” said John Burnham, vice president of marketing for Brix.

Burnham said that one of the great opportunities from this merger is that EXFO can simulate and endpoint so that as services are deployed, Brix can get key performance indicators from them and work the data into its product, BrixWorx, where it can generate reports accordingly. “That won’t take a whole lot of engineering work, so it can happen quickly,” he said.

Another benefit for Brix is the access to EXFO’s sales team. “The breadth of our customer relationships is world wide. We have an extended sales force throughout the world that will help the combined entity promote the Brix solution,” Gagnon said.