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January 3, 2003
GN Nettest, the test equipment subsidiary of Denmark's GN Great Nordic, has been handed over to an investment consortium in a move that's already helped spawn a new optical test company -- and could result in several more.
GN Great Nordic announced New Year's Eve that Danish investment firm Axcel Industri Investor is taking over Nettest for only one Danish kroner, about 14 cents in U.S. currency (see GN Store Nord Sells NetTest ). A source at Nettest says Axcel beat out three other takeover prospects, including "a U.S. investment firm, a competitor, and a big manufacturing conglomerate."
Included in the transaction is the total of Nettest's assets and products, which, like those of a group of suppliers other than Agilent Technologies Inc. (NYSE: A), accounts for a small slice of the networking test equipment market.
There's one exception to the sale: Nettest's Optical Production and Laboratory (OPL) division in Beaverton, Ore., which makes optical fiber and cable production test gear, has become an independent entity through a management buyout. (More on that later.)
At first glance, GN Great Nordic seems to have paid Axcel to take Nettest off its hands. It even paid off Nettest's debts to the tune of 155 million Danish kroner (about US$22 million) as part of the sale to Axcel. The parent also plans to record about 100 million Danish kroner (about $14 million) in various fees associated with the unloading of Nettest.
But appearances could deceive. Sources say the arrangement could bode well all around and just might hint at optimism about at least one part of the optical test equipment market.
For one thing, analysts think the change could free Nettest from the hindrance of a reluctant parent. GN Great Nordic has been looking to jettison the subsidiary for at least two years, because it didn't fit in with the parent's focus on consumer products, such as hearing aids. When the downturn squashed hopes of an IPO spinoff, other alternatives were sought. "GN had to achieve the separation," says analyst Marcus Nash of Morgan Stanley in London. Now there's a chance that both GN and Nettest will stabilize, he says.
GN Great Nordic's certainly hoping so. Its agreement with Axcel includes an "earn-out" clause that could entitle it to some of Nettest's future success.
One key to that success could be the new Nettest's focus, which will be on its mainstream network monitoring and equipment for carriers and enterprises and away from anything smacking of optical component testing.
Let's be clear: Nettest isn't getting out of testing optical networks entirely. It still peddles optical time domain reflectometers and fiber testers for field use by carriers. But in the boom time, Nettest made efforts to expand into an emerging optical market by investing in testers for optical components and fiber, stuff such as fiber geometry systems and fiber aligners, which were made by OPL in Beaverton. Since the optical components and fiber markets tanked, Nettest is turning away from those efforts.
Axcel is reorganizing the company around this charter, hoping that in doing so it will strengthen its ability to make sales. There's speculation that in the process of honing its vision, the "new Nettest" may get rid of other divisions, or oversee more management buyouts. One possible candidate may be Nettest's former Photonics division near Paris, which makes DWDM channel testers, tunable laser testers, and other optical test kit. So far, though, there's no news on developments there.
But Nettest's new owners are clearly thinking of making the company smaller. Nettest now includes about 700 employees, but Axcel's shooting for a staff of 400. Also, it's 2001 revenues were 2.32 billion Danish kroner (about $326 million), and Axcel's aiming for a new breakeven of 600 Danish kroner ($84 million), so clearly, more business will be jettisoned.
But that may turn positive, if, like Nettest's OPL, the divisions become independent. While details of the OPL buyout aren't public and calls to management, including the current head of OPL, Warren Hill, went unanswered at press time, it's still evident that someone was sufficiently optimistic about the division's prospects to bankroll it.
Of course, future prospects for Nettest, OPL, or any spinouts of the old GN Nettest remain elusive. The test market has been severely pinched along with the rest of the telecom market, and it's not clear yet how or when recovery will occur. Still, the relaunch of an existing supplier and the preservation of a separate components testing outfit may be counted as votes of optimism in an otherwise gloomy scene.
— Mary Jander, Senior Editor, Light Reading
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