Adtran is positioning its acquisition of ADVA as building a complementary combination of assets that can better capitalize on what it sees as an unprecedented investment cycle in fiber. However, analysts argue that the new combined company would still be just a “niche player” in the market.

The two vendors separately produced a combined $1.2 billion in revenues last year. However, Adtran's own presentation in support of the deal showed that market heavyweights Nokia and Ciena banked $3.9 billion and $3.5 billion, respectively, over that same time period. 

“It's not going to reshape the optical networking industry,” John Lively, principal analyst at LightCounting, told SDxCentral about the deal. “Adtran and ADVA are going to improve their position in combination, [but] don't really threaten the large players.” 

Companies that are potentially threatened by this deal are smaller competitors such as Infinera ($1.4 billion in 2020 revenues) and Calix ($500 million in 2020 revenues), Lively noted. 

“The challenges pressured by the global pandemic have clearly shown that fiber connectivity has become an essential foundation for the modern digital economy,” Adtran Chairman and CEO Thomas Stanton explained to investors about the deal. “This transformation will significantly increase the scale of the combined businesses, enhancing our ability to serve as a trusted supplier to our customers and worldwide.” 

Stanton added that “our combination will make us one of the largest western suppliers for the markets we serve. Our greater size will increase cross-selling opportunities to existing customers, accelerating our combined growth, and allowing us to further penetrate our target markets.”

Although Adtran will remain a mid-tier player after the deal closes, Lively and Dell’Oro Group VP Jimmy Yu both think in general, “it’s a good move.”

Yu noted that industry mergers can destroy value if too many products and workforces overlap. But in this case, Adtran and ADVA are from adjacent markets of fixed access and optical layer, and both sides will help each other grow the product line, so “it seems like a complementary combined company that's going to come out of this,” he added.

Lively echoed that there is almost no overlap in the product line, and “for the networks, the two companies logically fit together [as] Adtran makes access to equipment and ADVA makes the gear that connects the access equipment to the core.”

“So if you are a smaller service provider, and you want to upgrade to 10 Gb/s internet service for your customers, you could potentially buy everything you need from the new Adtran, from the passive optical networking, all the way through to connect to the core,” he said.

Yu also mentioned that the deal will help increase the scale and diversity in products as Adtran will be able to offer access and a backhaul solution, especially in tier-two and tier-three markets where most service providers want to work with one solution company instead of multiple vendors. 

On top of product line, "if you think like headquarters and geographic distribution, it's also complementary,” Yu said.

The combined company will call Adtran's global headquarters in Huntsville, Alabama, as home. It will maintain ADVA's headquarters in Munich, Germany, as its European base. Currently, Adtran has a geographical revenue split of 74% in the Americas, 21% in Europe, the Middle East, and Africa, and 5% in Asia Pacific, while ADVA is split 62% in EMEA, 29% in the Americas, and 9% in AsiaPacific, according to Stanton.

The deal expands ADVA’s presence in North America and Adtran’s ability to reach the European market more effectively, Lively said.

One of the drivers for this combination is “we see our customers making significant capital investments to transition their supply chains to trusted vendors with our roots in the U.S. and Germany, our company will be viewed favorably by customers who increasingly specify Western vendors,” Stanton explained. 

The geographic complementary could also help the new company lock down government subsidies from both the U.S. and Europe. 

“Government subsidies in the U.S. for building out fiber infrastructure are expected to be more than double in the upcoming years, including funding as part of the Infrastructure Bill, Rural Digital Opportunity Fund, and a growing base of state-level funding here in the U.S.,” Stanton noted. “In Europe, similar initiatives are underway with more than $45 billion of government funding programs proposed to provide universal high-speed broadband connectivity.”

Lively pointed out that more nations around the world have realized that “government spending is really necessary to push [broadband] into the rural areas where the density is not great enough to provide an incentive for the broadband providers to do it on their own.”

“It's kind of a race to build out their digital infrastructure to make the country competitive,” which presents a real opportunity for the new Adtran and also its competitors, Lively added.