Spirent’s CEO blames tough market conditions on impact to company’s finances
Viavi Solutions has made a bid to acquire Spirent Communications for $1.3 billion, and pending approval by shareholders, the test-industry-changing transaction is expected to close in the second half of this year.
The all-cash transaction values Spirent at $1.3 billion, and is being framed as providing comprehensive testing, assurance and security solutions for service providers, labs, data center and mission-critical infrastructure.
The news comes as Spirent reports its most recent full-year earnings, with revenues down nearly 22% year-over-year to $474 million, orders down nearly 24% compared to the previous year and reported profits before tax for the full-year down about 80% to about $23 million, compared to $114.6 million in 2022. The company paid out a dividend and did a stock buyback during 2023, however, and its gross margin held steady year-to-year due in part to a reduction in operating costs.
In a statement that accompanies Spirent’s results, CEO Eric Updyke explained Spirent’s position.
“As we progressed through 2023, the market landscape became increasingly challenging. The elevated prevailing interest rates and inflationary pressures impacted customers, especially those in the telecommunications sector,” he said. “These customers responded by taking significant action, particularly in the second half of 2023, to cut costs and by reducing their capital expenditure to preserve cash. To help navigate these more challenging conditions, we accelerated our focus on non-telco end markets, we undertook cost saving measures which will continue to deliver savings in 2024 whilst continuing to make important R&D investments to maintain our technology leadership.Â
“As a result of these measures, we saw strategic progress in a number of areas. We signed important new 5G and Open RAN contracts, secured an important win in Financial Services and saw good order intake in Positioning and among our hyperscaler customers,” Updyke continued. “As we start 2024, we will continue to protect and invest in our leading technologies to be best placed to support our customers. We expect that the current challenges for the telecoms industry will continue and it is difficult to predict how long they will last. Whilst we continue to believe the mid to longer term drivers for our business remain intact, as announced separately today, the Board has concluded that the offer from Viavi should be recommended to shareholders given the value it places on our business.”
“Combining [Viavi’s] leading communications test and measurement and optical technologies and Spirent’s high-performance testing and assurance solutions is expected to deliver enhanced product solutions and applications, accelerate growth in new markets and strengthen innovation through expanded engineering and design capabilities,” said Oleg Khaykin, president and CEO of Viavi. “Further, we are uniting two teams with a shared passion for developing compelling and cutting-edge offerings for customers and a commitment to technological excellence. We are confident that the highly complementary nature of this transaction will position us to capitalize on opportunities ahead to drive increased revenue growth and long-term value creation for all stakeholders.”
Viavi also received a strategic, long-term investment of $400 million from private equity firm Silver Lake (where Khaykin was a senior advisor prior to taking the helm at Viavi) in conjunction with the acquisition of Spirent, in the form of notes that will help finance the transaction.
Viavi noted in its offer documents that while it has already bolstered its U.K. presence in recent years through the acquisition of Cobham’s test and measurement unit in 2018, and the Spirent acquisition builds upon this. Viavi says that it currently has about 400 employees at three U.K. locations, including more than 200 focused on research and development and product development. Spirent has about 1,500 employees; it is headquartered in Crawley, U.K. and has a presence in 10 other locations, including the U.S., China and India.
Other recent acquisitions by Viavi include its purchase of Jackson Labs in 2022, which specialized in positioning, timing and navigation (which is also a specialty for Spirent); and, also in 2022, India-based CanGo Networks, which focused on automation, AIOps and 5G assurance. Viavi also made repeated attempts to acquire test company EXFO in 2020 and 2021, only to be turned down by EXFO’s founder and majority shareholder, who then proceeded to take EXFO private.
