Adva Optical acquires Covaro

Adva Optical Networking is acquiring Ethernet equipment vendor Covaro Networks, doubling the German vendor’s U.S. workforce, broadening its portfolio of metro Ethernet access products and hastening its penetration of the American market.

In a deal expected to close in January, Adva will acquire Covaro for $15 million in Adva stock and $4 million in cash. Adva may also pay up to $5 million in additional cash contingent upon Covaro’s products meeting revenue and gross margin milestones between now and December 2006. Adva believes the integrated company will have no net impact on its operating income next year.

The acquisition adds more Ethernet First Mile (EFM) equipment to Adva’s existing EFM-based FSP 150 fiber access products. Covaro’s suite of Etherjack Ethernet demarcation devices use circuit-bonding technology to deliver Ethernet over various media, including fiber, copper, Sonet, DS-1s/Ds-3s and E1s/E3s. Covaro distinguishes itself with a focus on operations management features, such as the ability to measure service levels end-to-end. Adva, which has specialized more in transport, hopes to bring those management features to its existing products as well.

“This was a logical progression for us,” said Brian McCann, Adva’s chief marketing and strategy officer. “Covaro has traction today. That helps us get to market a lot faster.”

As a private company, Covaro’s revenues are undisclosed, but it claims to have shipped its product to 60 carriers, about 10% of which are tier-one. The majority of its revenue comes from North America, a particular focus for Adva, which gets less than 20% of its revenue here.

Adva launched its Ethernet access gear in the U.S. in May 2004 as part of a determined effort to penetrate the American market. Seven months later, its chief executive officer, Brian Protiva, moved from Germany to New Jersey to support the strategy.

Adva, which employs 42 people in the U.S. (mainly in New Jersey), will retain Covaro’s Richardson, Tx., office and adopt the majority of Covaro’s workforce, which includes more than 50 employees.

Adva will continue to look for acquisition opportunities in the U.S. that serve what the company calls its “optical plus Ethernet” strategy, McCann said.