DragonWave Inc, an Ottawa maker of Ethernet backhaul for wireless carriers, plans to buy the microwave transport business of Nokia Siemens Networks for 10 million euros (about CDN$14 million), plus 5 million euros in DragonWave shares. But if other parts of the deal come to fruition it could mean substantially more for the Canadian comnpany.
The firms said Friday they have signed a deal which would also make DragonWave the preferred supplier to NSN of packet microwave and related products. NSN will continue to market and sell microwave solutions, but DragonWave will now be the manufacturerer and responsible for product development.
As a result, DragonWave becomes closely aligned with a major manufacturer of cellular base stations with access to customers around the world. DragonWave CEO Peter Allen told financial analysts on an conference call the deal could increase the company’s quarterly revenue “four or five fold” to as much as $100 million a quarter.
The deal is subject to regulatory, exchange and third party approvals.
“This relationship is truely transformational for DragonWave,” Allen told analysts. “It strongly positions us as the only independent microwave supplier to have a strategic relationship with a leading 4G base station and global solutions provider.” It gives his company the ability to serve customers who want integrated solutions or best of breed products, he said, and gives it greater global reach.
“Through this strategic relationship, customers would continue to receive high-quality services and sales support from Nokia Siemens Networks, while DragonWave’s best of breed products would ensure they have access to industry leading technology,” Marc Rouanne, head of NSN’s network systems division, said in a release.“Our intention is to capitalize on DragonWave’s proven capabilities for innovative product development and focus on our end-to-end solutions.”
About 360 NSN staffers mainly based in Milan and Shanghai will become DragonWave employees, adding to the 270 employees of the Canadian company.
While DragonWave [TSX: DWI; NASDAQ: DRWI] is paying cash, it is also assuming an equal amount of NSN employee liabilities, and will enter into a capital asset lease arrangement with NSN for 5 million euros. However, there are also hardware and software sales performance based earnouts that could raise the value of the transaction to 80 million euros after four years.
DragonWave said in the release it believes the proposed acquisition and supply agreements will accelerate innovation in backhaul products, supporting world class microwave solutions for mobile operators. The companies aim to complete the planned acquisition and supply agreements in the first quarter of 2012.
Following the proposed acquisition, Nokia Siemens Networks would retain responsibility for its existing solution sales and associated services for microwave transport, while DragonWave would be responsible for the product line, including R&D, product management and operations functions.