Moving to gain a foothold in an emerging segment of the telecommunications industry, PairGain Technologies Inc. on Wednesday agreed to buy a Connecticut developer of new networking technology for $94 million in stock.
AVIDIA Systems Inc., a leading developer of technology used to smooth the flow of data and voice traffic over phone lines, would become a wholly owned subsidiary of Tustin-based PairGain under terms of the acquisition.
Analysts said the deal broadens PairGain’s already commanding position in its corner of the telecommunications market. PairGain, one of the nation’s fastest growing high-tech companies in recent years, makes devices that improve the capacity of old-fashioned copper phone lines to handle voice and data traffic.
“PairGain is far and away the leader in the game of putting higher-speed data communications over existing copper wires,” said Joseph Noel, an analyst at Hambrecht & Quist in San Francisco. “This lengthens their lead.”
While the two companies’ products have different functions, they both help regional telephone companies and other customers handle more computer data and voice traffic at higher speeds.
AVIDIA is a developer of so-called ATM technology, which stands for asynchronous transfer mode. The company’s multiplexers and other products help bundle data and voice signals from disparate sources into an aggregate unit that can be shipped along at great speed. Noel compared the technology to a high-tech funnel.
“PairGain was providing the lines to get to the funnel,” Noel said. “Now they’re providing the funnel.”
Describing the deal as a “very important long-term move,” Chuck Strauch, chief executive at PairGain, said AVIDIA is a privately held company with about 25 employees, mostly engineers. He added that AVIDIA is barely a year old, and will have only a minimal contribution to PairGain’s overall revenues for the next few years.
PairGain has grown at a break-neck pace. The company’s 1996 sales totaled $205 million, nearly double the revenue of $107 million the prior year. Net income for 1996 shot up to $36.6 million, compared with $1.1 million in 1995.
Analysts said the acquisition of AVIDIA could eventually help PairGain maintain its blistering growth rate.
“When a customer goes to you for equipment, they’re more likely to take you if you have an end-to-end solution,” said Brad Peery of Brad Peery Capital in San Francisco.
But the deal also works to the advantage of AVIDIA, analysts said. The market for ATM technology is only beginning to emerge, with a number of companies scrambling for an early market share lead. PairGain already does business with all of the nation’s regional telephone companies, and could help AVIDIA grab market share quickly.
The announcement was made after the close of the stock market Wednesday. PairGain’s stock, which has undergone two splits in the past few years, closed at $40.25 per share, up 25 cents per share on the Nasdaq market.
The deal is expected to close this month.