The telecom equipment maker will issue 13.25 million shares for all the equity of privately held CommTech, which makes operations support systems software (OSS) that allows network operators such as a phone carrier to bill customers, activate accounts and manage its services. Minneapolis-based ADC expects the deal to close no later than Feb. 28 and says the acquisition will not dilute earnings during the first 12 months after the deal's close.
ADC's grab of Cranberry, N.J.-based CommTech is part of the company's larger strategy to offer software that helps manage high-speed networks to its customers, which are primarily phone or data service providers.
Tim Savageaux, an analyst at WR Hambrecht, says the acquisition is small enough for the company to digest, but presents some strategy questions over how much ADC needs to emulate larger equipment makers such as Cisco, Lucent and Nortel, which offer broad product lines of software and hardware.
"The question is whether a smaller vendor should be in the end-to-end solution business with software being a part of it," said Savageaux. "Communications software is a good business, but whether or not it represents synergy with the rest of (ADC's) hardware business remains unclear to me."
ADC has bought four other software companies since 1996, and company spokesman Rob Clark says that the purchase of CommTech gives ADC the know-how required to offer customers a complete product line of OSS software.
Clark also believes that the growing complexity of networks has pushed hardware makers further into the software business. "As networks become more intelligent and the hardware becomes more intelligent, the software interacts more with the networks," he said.
ADC will report its fiscal first-quarter earnings on Feb. 21. Wall Street expects the company to make 6 cents a share, the consensus estimate of 17 analysts surveyed by First Call, while 12 analysts surveyed predict the company will make revenue of $882 million. That compares with earnings of 6 cents a share and revenue of about $582 million the company made in the year-ago quarter.
ADC warned last month that the company would miss Wall Street's previous expectations because of a spending slowdown in the telecom sector.