Arvind Chhatbar.

Things could have gone poorly for Ottawa's Enablence Technologies Inc. in 2007.

In May, the company halted plans for a public offering following word that securities regulators were investigating the timing of options granted to directors, officers and employees of the company in December 2006 and March 2007. Meanwhile, as the offering was put on hold, the North American credit market began to tank.

So how did the developer of fibre-to-the-home (FTTH) transceivers for optical modems manage to raise even more money than it had anticipated when it picked itself up and made its offering in October 2007? The company had originally planned to raise $50 million through the sale of just over 37 million common shares for $1.35 each, but instead sold over 42.5 million shares, raising $57.5 million. That money is already being put to good use, as late last week, Enablence announced it was buying Fremont., Calif.-based ANDevices Inc., a photonics products manufacturer in a deal worth approximately US$33 million in cash and shares.

Never underestimate the power of a good reputation and a solid product, said CEO Arvind Chhatbar.

OBJ: So when did this deal first start to take shape?

CHHATBAR: We originally intended to raise this money in May 2007, but our public offering was put on hold because of an Ontario Securities Commission investigation. They cleared us in July, but by that time the markets had collapsed, as you know, and so we decided to hold off for a little bit and start the process again in mid-September. Then we completed the financing before the end of the month.

OBJ: But didn't the markets get even worse?

CHHATBAR: We were fortunate that the level of support we had in the investment community, despite the market conditions, was very positive for us. So we were very pleased, and in fact we were able to raise much more than we had anticipated when we were trying to raise money back in May. So, the share price plus the money that we were able to raise were much higher in October than they were in May. We expected to raise $55 million and in October we raised $57.5 million.

OBJ: What did you think when you had to delay the public offering and the markets began to slip?

CHHATBAR: Well we were quite worried. Of course we were not pleased with the delay that took place as a result of the inquiries that the Ontario Securities Commission were making, but you have very little choice once they start doing this. I think we have been fortunate that the investment community did not run away from us, so to speak.

OBJ: Why do you think investors were so attracted to your company despite these pitfalls you experienced?

CHHATBAR: I think it has a lot to do with investors' confidence in our technology, in the management team and in the market for our products. All three of those things were pretty strong for us and that obviously gave the investment community a lot of confidence in us.

Looking back, I think there were a number of advantages because of the delay. When we did a raise in March of 2007, we then went to the market just two months later in May. In May, we told investors that several things were going to happen to our company in July and August. The two major achievements we were promising were the completion of a fully automated production facility located at Sanmina-SCI in Allen, Texas. We also had a live demonstration of the use of our product, of the fibre-to-the-home system in actual use.

I think when we went to them in September and we were able to show them that what we had told them in May we did in fact accomplish, I think we had lots of evidence that what we were saying was in fact happening. So then confidence in the management team's commitments and projections heightened. We were not seen as a company that was promising one thing and then not delivering.

I think this delay that wasn't our making, fortunately helped us to demonstrate that these commitments were in fact achieved. People saw that the targets that we had set happened and came in on time.

OBJ: What were your financial facilitators telling you at this time?

CHHATBAR: They were all saying it was a bad time, but we were pretty confident and we asked them to give us a chance to talk to (investors) directly and I think that they were glad that we did that. We were nervous during the July and August time frame – it was a bad summer. But things turned out OK, more than OK.

OBJ: How will this money change your company?

CHHATBAR: The money has been raised in order to allow us to do some vertical integration, to allow us to expand our marketing strength, to allow us to add new products in our portfolio and it is certainly intended to be used for some working capital purposes. So those are the critical uses of the money we have raised.

I think that 2008 is expected to be a bigger year than 2007 was for us.

THE EXPERTS SAY

Enablence was one of Deloitte Technology's FAST 50 Companies to Watch Award winners and what the FAST 50 program first recognizes is companies that are growing in terms of revenue base. But then we also have a separate category to say even if these companies aren't growing from a revenue perspective, they do own a lot of the market share regardless. We do that in the hopes that in the next number of years they are going to be on the revenue track.

They (Enablence) were chosen because of the activity that they've had in the marketplace for the past 18 months. The company was created in 2003 and went public in 2006 when they did a public offering through a reverse takeover. Then they followed that up with a very successful secondary offering, raising $57.5 million.

What that says about the company is that there are lot of high expectations for the technology that they are developing. (fibre to the home) is a "last mile" type of technology based on the optical framework.

Enablence has raised all of this money, they have a vertical integration strategy and they are going to be pursuing that in the next year with the funds that they've raised. That will help them to expand into different markets and allow them to go to market in a more seamless manner.

Michael Runia, partner at Deloitte & Touche LLP

Fibre to the home is a technology that companies and municipalities use to connect your house at a very high speed back to the Internet for phone for video transmission. By replacing old copper cables with glass, or optical fibre, there is a capability of getting 10, 100, or even 1,000 times as much information carrying capacity – or bandwidth. Optical fibre is often referred to as a "big pipe." If you're on a DSL line with one megabits per second capacity, with optical fibre, it is possible for you to be on a line with a capability of 10 megabits or even 1,000 megabits.

What Enablence makes is novel equipment that pushes pulses of light through the glass fibre. So they have the lasers that create pulses of light and the transceivers that turn it back into voice and audio signals. They create a very necessary component of the fibre-to-the-home network.

I know that Enablence is very well received and they have a number of technical advancements that other companies do not. Fibre to the home is a global growth market and Enablence's customers are all over the world. The number of subscribers in North America alone has doubled every year for the past three years and we expect it will more than double in the next few years, so their end market is increasing very rapidly.

Joe Savage, president, FTTH Council