Spirent makes £284m US acquisition

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Spirent, the communications testing equipment group, has underlined its promotion to the FTSE 100 index from next Monday with a £284m all-share US acquisition.

Spirent, the communications testing equipment group, has underlined its promotion to the FTSE 100 index from next Monday with a £284m all-share US acquisition.

The company said yesterday it had bought Zarak Systems, a Silicon Valley-based manufacturer of test equipment that targets the switching of voice traffic over internet protocol (IP) networks.

Nicholas Brookes, Spirent's chief executive, said: "The acquisition marks the next step in Spirent's development of the world's leading suite of performance analysis solutions."

The acquisition of Zarak furthers the transition of Spirent, formerly known as Bowthorpe, from a move begun 18 months ago to target the high-value end of the communications testing equipment market.

Moving voice traffic from traditional circuit switched networks to IP-packet switched networks is set to become the fastest growing application of internet technology. Although IP voice traffic is small compared with circuit switched traffic, more sophisticated software is expected to see voice-over-IP grow exponentially.

Voice-over-IP is championed by firms like Cisco Systems, the dominant supplier of router technology that directs traffic through the internet.

Mr Brookes said: "It's really an emerging and exploding market. As we start to switch voice from public switched telecom networks to seamless, high-speed data networks, testing switches and analysing performance of those networks will become increasingly important, over the next decade."

Established in the early 1990s, Zarak has 140 employees of whom 85 are in research and development. Ian Mills, Zarak's founder and 80 per cent owner, will receive Spirent stock worth £227m, making him the largest non-institutional shareholder in the UK company, which is currently valued at £3.96bn.

Mr Mills and other Zarak employees with Spirent stock will be able to sell their shares in three equal tranches over the next year. Mr Mills plans to stay with Spirent but will not become a main board director.

The acquisition is expected to enhance earnings per share, prior to goodwill amortisation, in the current half. The deal is scheduled for completion in late September or early October.

Zarak was recently named by Deloitte & Touche accountants as one of the 50 fastest-growing businesses in Silicon Valley. Its main product is a machine called Abacus which emulates call-switching functions to assess voice quality through the network. Abacus costs between $15,000 and $100,000 per unit, depending on software and hardware specifications.

In 1999, Zarak recorded a 76 per cent rise in sales to $30m (£21m), while operating profit jumped two-thirds to $12.5m. In the six months to June, Zarak scored a 63 per cent rise in operating profit to $11.7m. It has net assets of $14m. Spirent'sstock has tripled in value since mid-1999, leaving it with a market capitalisation of £4bn.

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