As it turns out, Riverbed Technology's (NAS: RVBD) transformation is only just beginning. The company, whose software optimizes the delivery of data between distant points, yesterday announced plans to acquire OPNET Technologies (NAS: OPNT) for $1 billion in cash and stock.

"The addition of OPNET establishes Riverbed as the clear leader in the high-growth and converging application and network performance management markets," said Jerry Kennelly, Chairman and CEO at Riverbed in a press release. "This acquisition also transforms Riverbed into a billion dollar revenue company."

Management will finance the deal via a $500 million term loan and issue 7 million new shares of stock to cover costs not paid with existing cash. Riverbed had $533 million in cash and short-term investments and no debt on its balance sheet as of Sept. 30.


Piecing together the puzzle
So, what does the deal mean practically? Kennelly sees a natural fit between tools that monitor performance and the software and gear that drive it. Integrating the two should allow network managers to fine-tune the system to overcome speedbumps.

Kennelly isn't the only one who thinks so. F5 Networks (NAS: FFIV) has provided some form of network and application monitoring for years now. Cisco Systems (NAS: CSCO) also touts a suite of application performance management (APM) services. In acquiring OPNET, Riverbed is taking a product approach. Technology research firm Gartner rates OPNET as the visionary leader in the APM.

What to expect now
So Riverbed is spending to get the best products it can. But is the deal wise? Kennelly sees OPNET combining with Riverbed's existing Cascade network performance monitoring business to create a $250 million business unit.

Over the trailing 12 months ended on Sept. 30, OPNET accounted for $182 million in revenue. The implication? Riverbed is paying 5.5 times revenue to acquire a purported market leader. All of which would be fine save one small problem: OPNET missed estimates on both the top and bottom lines in fiscal Q2, its second miss in five quarters.

Metrics

FY Q2 2013 Estimate

FY Q2 2013 Actual

FY Q2 2012 

Growth Actual (YOY)

Adjusted earnings per share

$0.25

$0.22

$0.24

(8.3%) 

Revenue

$47.85 million

$47.06 million

$41.92 million

12.3% 

Source: Yahoo! Finance.

On the other hand, OPNET has proven adept at generating cash. The company has produced more than $20 million in free cash flow in each of the last two fiscal years, and over $100 million in cash and short- and long-term investments with no debt on hand at the time of the deal. This is a healthy business.

But at $1 billion, Riverbed has to be expecting much better than 12% year-over-year revenue growth. Expect Kennelly and his team to introduce incentives for selling OPNET as an add-on in a suite of Riverbed gear. It's a strategy that paid off in Q3, when revenue grew 15% and profits zoomed 17%.

"To summarize, during the third quarter, we continued to see large deals from customers whose purchase is centered on traditional WAN optimization usage cases, including accelerating access to applications, the enablement and consolidation and disaster recovery," Kennelly said at the time.

Translation: Customers want more from us. Our aim is to meet their needs, and profit from the effort.

The Foolish bottom line
OPNET will help. Riverbed expects the acquisition to be "accretive" to 2013 earnings per share on a Non-GAAP basis and then deliver "meaningful revenue and operating synergies" come 2014, the company said in announcing the deal.

Whether investors buy the story is another matter, but at Motley Fool Rule Breakers, we've held tight on the belief that smarter, faster, more secure networks are inevitable in a world that's become dependent on digital access to data, goods and services, and entertainment wherever we may be.

Our analysts see one company making a killing from this wholesale shift to smart wireless devices. Do you know this disruptor? A free special report has the name and all of our team's research -- click here to get your copy instantly.

The article Riverbed's Billion-Dollar Bet -- Will It Pay Off? originally appeared on Fool.com.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Riverbed Technology at the time of publication. Check out Tim's web home, portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.The Motley Fool owns shares of Riverbed Technology, Cisco Systems, and F5 Networks. Motley Fool newsletter services have recommended buying shares of F5 Networks and Riverbed Technology. Motley Fool newsletter services have recommended creating a stock position in Riverbed Technology. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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