infoTECH Feature

October 15, 2014

Wheelings & Dealings: NetScout Set to Land Danaher's Communications Arm

A fairly major move arrived in the communications field recently as NetScout (News - Alert) made an agreement to pick up the communications arm of Danaher Corporation, a business which in and of itself comprises several critical subsystems. While the sheer size of the deal involved is noteworthy in its own right, as well as the means by which it's being carried out, it's the motivation behind the deal that's drawing some attention.

The deal calls for NetScout to offer Danaher (News - Alert) 62.5 million common stock shares of NetScout, valued at about $2.6 billion at last report, to acquire several portions of Danaher's communications arm, including Tektronix (News - Alert) Communications, Arbor Networks, and certain portions of Fluke Networks. It's important to note that only some portions of Fluke Networks (News - Alert) fall under the terms of this arrangement, as reports note that the data cabling tools portion, as well as the carrier service provider tools portion of Fluke Networks will be specifically excluded from the deal.

That may sound like a substantial quantity of shares, and indeed, it is; under the new deal, Danaher will own roughly 59.5 percent of the newly-combined company, while NetScout's current shareholders will account for the remaining 40.5 percent. When the deal is complete, Danaher's executive vice president, James Lico, will join the board at NetScout, bringing its total roster to eight. Meanwhile, Anil Singhal will remain NetScout's president, CEO and chairman under the new arrangement. Singhal noted that the deal was established in a bid to better allow NetScout to compete in the fields of IT management as well as cyber intelligence, two fields which have seen some impressive growth of late.

That improved competition will reportedly be worth quite a bit, as Danaher believes the newly-combined firm will bring in revenue of over $1.2 billion, on a non-generally-accepted-accounting-principles (non-GAAP) basis. By the end of the first year of combined operations, Danaher reportedly noted, the deal should prove accretive to non-GAAP earnings.

This is really a substantial deal for both sides here, and it's clear that NetScout is going quite a ways in order to ensure its ability to better compete in the field. It's giving up what amounts to controlling interest in itself to acquire parts of another company; Danaher shareholders hold the majority of NetScout shares now. But in the process, NetScout gets an array of new tools with which to compete in the wider market, a development that, by itself, is likely to prove quite welcome to the rest of the NetScout shareholders. With IT management and cyber intelligence both on an upward cant in terms of opportunity and potential revenue, NetScout's newfound ability to compete here should give it a much better shot at realizing that potential revenue.

Only time will tell, of course, just how well this strategy actually works. But with NetScout packing an array of new tools and a little extra expertise on the executive board, it's a pretty fair bet that the company will, long-term, be in a much better position to compete in growing markets than it is currently.




Edited by Rory J. Thompson
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