Tag: Airespace

Cisco ‘papers’ purchase of Pure Digital

Brenon Daly

Contact: Brenon Daly

When we wrote recently that Cisco Systems was an unpredictable acquirer, we only covered half of it. Who would have thought (prior to rumors and subsequent official word last Thursday) that Cisco really wanted to buy its way into the consumer electronics market? Much less that the company wanted to enter that space so badly that it would pay what looks a lot more like a 2007 valuation than a 2009 valuation?

We’re referring, of course, to the networking giant’s acquisition last week of Flip camcorder maker Pure Digital Technologies for $590m. As for the valuation, we understand that Pure Digital wrapped up last year with sales of $150m, meaning Cisco paid about four times trailing 12-month sales for the company. Of course, Pure Digital was growing quickly, but we would still note that its valuation is about twice as rich as Cisco’s current valuation. (There were no bankers on either side of deal, we’ve been told.)

The concern about Cisco’s valuation is more than an academic issue for Pure Digital. After all, it took payment in Cisco shares, rather than cash. And that’s the other part of Cisco’s unpredictability. According to our records, the Pure Digital purchase was the first time Cisco has used its equity to acquire a company in more than four years. (The last time Cisco did a paper deal was its $450m pickup of wireless LAN switch vendor Airespace in January 2005.)

Since then, Cisco has inked some 42 transactions with a disclosed deal value of $13.4bn. And of course, the company still has its well-reported $29bn in cash on hand. That level won’t change due to Pure Digital. We can only speculate why Pure Digital’s backers chose to take Cisco stock rather than cash in this economic environment. But we would note that this isn’t the first time that one of Pure Digital’s backers has taken a slug of Cisco equity. Way back in 1987, Sequoia Capital’s founder Don Valentine put money into Cisco.

Wire buys wireless

Brenon Daly

Two weeks ago, we noted Trapeze Networks had been sold without indicating what company had been sitting across the table from the wireless LAN (WLAN) infrastructure vendor. The buyer can now be named: Belden. The St. Louis-based company is more known for its wiring and cable products. (Indeed, before inking the Trapeze deal, Belden’s previous deal had been the $195m purchase of a Hong Kong cable company.) We’ll have a full report on this transaction – and the implications for the sector – in tonight’s Daily 451.

While the pairing of a wireless company with a company known for its wires may seem odd, there are actually a fair number of points that make sense for Belden-Trapeze. For starters, Belden is viewed in the WLAN market as a neutral vendor, which means that Trapeze’s sales arrangements shouldn’t be threatened by the acquisition. We would contrast that with the fallout from Cisco’s early 2005 purchase of Airespace, which forced Airespace partners Alcatel and Nortel Networks to scramble to find a replacement supplier of WLAN technology after the deal. Also, Trapeze had decent sales in Europe and Asia, markets that Belden has targeted.

In the end, however, it all comes back to money. In that sense, the Trapeze deal shows how steeply the valuations of the WLAN infrastructure vendors have come down. The multiple in this deal was two-thirds lower than the level that Cisco paid three years ago in its purchase to get into this market. (Granted, Cisco has a reputation of skewing the market with top-dollar bids.) Still, Trapeze exited for $133m after raising about $100m in venture funding. We understand that rival Meru Networks is currently out raising another round. The company already counts Lehman Brothers, Clearstone Venture Partners, Sierra Ventures and DE Shaw among its investors. While Meru may well land an up round, we’re guessing Trapeze’s valuation – combined with Aruba Networks’ rough ride on the Nasdaq – certainly haven’t helped those conversations. 

WLAN vendor valuations

Company Acquirer Price Price-to-TTM sales ratio
Airespace Cisco $450m 7.5x*  
Trapeze Belden $133m 2.3x  
Aruba NA $467m market cap 2.7x  

*estimated, Source: The 451 M&A KnowledgeBase

Trapeze swings to a deal

Brenon Daly

After nearly a year on the block, Trapeze Networks has been sold for about $150m, several sources have told us. An announcement is expected late next week. The buyer for the wireless LAN switch vendor isn’t immediately known – but it isn’t Juniper Networks. An OEM partner of Trapeze, Juniper also put money into Trapeze’s series D funding two years ago. One source indicated the two sides got very close to a deal last summer – at a price well north of the $150m Trapeze is expected to sell for now – but couldn’t agree on a final valuation.

We understand Trapeze looked to push the price higher, following the strong IPO of rival Aruba Networks. Aruba went public in late March 2007 at $11 per share and had doubled in price by July. At its peak, Aruba traded at a market capitalization of $1.9bn. However, Aruba has been stumbling recently, including reporting sales that were 20% lighter than Wall Street expected last quarter. The company now trades at just under a $500m market capitalization. Trapeze’s valuation also got caught in that downdraft. The rumored $150m price tag for Trapeze would value the company at roughly three times 2007 sales.

If indeed Trapeze is acquired, that would leave Meru Networks and Colubris Networks both looking for an exit. We understand that Meru, which is larger than Trapeze, is looking to hit the public markets when the IPO window opens again. In the past, we heard that Meru had talked with Foundry, although there was no indication of serious discussions. Meanwhile, Colubris would be a smaller acquisition, as it is running at about $30m in sales. Nortel Networks may be interested in Colubris. Whatever consolidation plays out in the WLAN switch market, most observers would agree that it’s overdue: It’s been more than three years since Cisco shook up the space with its $450m purchase of Airespace – a move that most expected to trigger a wave of deals. 

Rumored WLAN matchmaking

Company Rumored exit
Trapeze $150m sale to public company, to be announced next week
Meru Potential IPO, though reports of talks with Foundry
Colubris Rumors of talks with Nortel