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Pace Picks Up Speed

ATLANTA -- It looks like Pace hasn't given up its grand ambitions to become the next big heavyweight player in the pay-TV and broadband tech markets.

Nearly a year after it lost out to Arris Group Inc. (Nasdaq: ARRS) in its bid to take over Motorola Home, Pace plc is back on the M&A front again. With its surprising deal to buy Aurora Networks Inc. for $310 million Wednesday, the big British set-top maker is moving to expand its presence in the cable and broadband equipment space and round out its portfolio of key nuts-and-bolts products.

Specifically, if all goes according to plan, the Aurora acquisition will give Pace a strong play in the cable optical transport and access network markets. Aurora, a privately held firm based in Santa Clara, Calif., specializes in such products as fiber optics nodes, digital receivers, and Passive Optical Networking (PON) and Radio Frequency over Glass (RFoG) gear, all designed to help cable operators squeeze more bandwidth out of their HFC networks. With this product mix, Aurora generated operating income of $30 million on $217 million in revenue in the fiscal year that ended March 31, according to Pace.

Besides the optical transport products, Aurora will also give Pace more access to major cable operators, particularly in North America, and allow it to cross-sell products to more MSOs. Boasting more than 200 customers in 30 countries around the world, Aurora is particularly strong in the US, where it supplies gear to all of the top 10 MSOs.

Pace is not exactly a slouch either in the North American cable market, where it has made its mark with advanced digital and hybrid IP set-tops and gateways over the past few years. Most recently, it has served as the initial supplier of the hybrid IP video X1 gateways that Comcast Corp. (Nasdaq: CMCSA, CMCSK) has not rolled out in almost 1 million homes across the US.

But Pace still doesn't enjoy the same MSO reach as Aurora, which has quietly established itself as a fixture in the cable industry since its founding 14 years ago. And Pace certainly doesn't enjoy the same reach as Arris and Cisco Systems Inc. (Nasdaq: CSCO), which are by far the two biggest suppliers of equipment to the cable industry.

Pace's plans call for operating Aurora as a separate business unit with its current management team intact, including CEO Guy Sucharczuk. Aurora will also keep its brand name and continue to manage its own profit-and-loss statements.

In an interview with Multichannel News, Pace CEO Michael Pulli said he expects most of Pace's approximately 350 employees, mainly consisting of engineers, to stay with the company. But he also said Pace will have to weed out any corporate duplication during the integration process. Pace is seeking to close the deal by year-end.

For their part, Aurora executives are hoping that the deal will create greater synergies for them to expand their reach to new customers. They're also hoping that the acquisition will enable them to cut manufacturing costs by teaming up with the much bigger Pace, which churns out tens of millions of new set-tops and gateways each year. And they're hoping that Pace will open its wallet so that Aurora can boost its investment in R&D and new products.

"There are a lot of things we want to do," said John Dahlquist, vice president of marketing for Aurora, in an interview at the SCTE Cable-Tec Expo show here. "We believe it will help our ability to grow."

Given Pace's continuing ambitions, don’t be surprised if the company swoops in to make another targeted purchase in the cable tech space soon. As Pulli told Multichannel News, the company is on the lookout for other ways to expand beyond its core set-top business. One likely target is the software and services area, where Pace has already bulked up with its previous acquisitions of 2Wire, a maker of home gateways, and Latens Systems, which offers conditional access and digital rights management software.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

albreznick 10/27/2013 | 2:02:40 PM
Re: Software Could be possible, Dan. Would be a very interesting move for Pace if they did. Could make a lot of sense. Haven't heard any rumors about that, but who knows?   
DOShea 10/25/2013 | 9:11:43 PM
Software Re: software, maybe they could buy TiVo. Actually, I don't even know if that's possible, but it is fun to bring up the idea.
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