July 24, 2009
There have been a lot of companies that have been called “technology” over the years, but the word connotes thoughts in the minds of investors, thoughts of strong growth, strong share price appreciation and excitement. Why do I mention this? I was amused this morning when I took my daily browse of the financial headlines and came across one on the Yahoo! Finance site picked up from Reuters that said, “Microsoft raises specter of doubt on tech recovery“. Could it have anything to do with the maturity of the personal computer business? There was a day when the mainframe computer business was a tremendous growth business. It was follow buy minicomputers and workstations. Do any of those markets conjure up the excitement and thought if big investment gains? Yes, they are technology, but this is not the stuff that is going to lead us on the other side of the recession, nor are PCs running Microsoft operating systems. Apple is about the only participant creating excitement in that world and it certainly has less to do with the company’s PCs than the other things it is doing. There will be a tech recovery, but it is going to be in the important new products our industry is producing. The mature technology of Microsoft and others will see improving trends, but it has been quite a while since this company and it’s piers have generated exciting growth and great profits for portfolios.
We see plenty of opportunity in the technology markets, you just can’t remain stuck where you’ve been. That’s what we live for in our M&A practice; to help companies reposition for the growth of tomorrow and shed that past to those that wish to hold on to it. If inflation is going to be something we are wrestling with in the coming years, the emerging technology markets may be one of the few places investors can turn to stay ahead. Don’t spend much time worrying about the headlines.
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Technologies, Thinking About M&A?, Topics on Our Mind | Tagged: Alternative Energy, Fiber Lasers, Imaging, IR Cameras, M&A, Nanotechnology, Optical Components, Security, Sensors, Software & IT Services, Solar Energy, Telecom | 
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Posted by Kevin C. Slocum, Managing Director, kslocum@gtadvisors.com
July 17, 2009
Sometimes the science is easy, but the engineering hard. Complex devices usually do not have sufficient behavior models (common today in silicon semiconductors) for rapid implementation and fine-tuning of properties; not to mention the life-testing, reliability and qualification processes common in the photonic industry.
That said, we are excited about a report in the Royal Society of Chemistry, Chemistry World Newsfeed about an upcoming Nature article titled “Photoconductance and inverse photoconductance in films of functionalized metal Nanoparticles”. This work by Professor Bartosz Grzybowski and his group at Northwestern University demonstrated nanoparticle devices where conductance decreases with exposure to visible light. These can be very sensitive, tuned to various spectral ranges and printable upon plastic substrates.
To us these sound a great starting point for low-cost, high volume photodetectors, used to some extent in nearly all industrial and communication photonic systems. Some additional points:
Nanoparticles typically have extremely rapid rates of optical decay. In nanoparticle based photodetectors this should translate into rapid optical to electron conversion, and in theory making these appropriate for high speed telecommunications (40 and 100 G).
As these can be manufactured at low temperatures and potentially on a range of substrates, they may be benign enough to allow manufacturing in the same clean room as other photonic devices and make creating hybid components easier.
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Posted by Dennis Gallagher dgallagher@gtadvisors.com
July 13, 2009
I watched the reaction – the way the stocks have behaved – of Finisar and JDSU with interest in the days since their press announcements last Thursday morning. Finisar’s shares advanced less than I would have guessed at the time of the announcement and JDSU’s more. That leads me to wonder what is different in how the markets see this transaction.
JDSU might be the easier to understand. First, I was underwhelmed from a JDSU perspective, because for nearly a decade the Finisar network tools business has struck me as having been long on growth potential and short on that coming to fruition. I’m sure a close look will prove me wrong, but this has never been an exciting source of growth for the company. So I concluded, why should I be excited about it for JDSU?
The answer that perhaps eluded me is that this is the first real acquisition of the Thomas Wachter era at JDSU and perhaps it is signaling to investors the new CEO, who came from the test side of the business, is going to push the company deeper in that higher margin and typically more profitable direction. I guess we’ll see.
My off the mark rationale on Finisar was the company had taken steps to eliminate the big issue that had overhung its shares for months; how to retire more than $100 million in convertible debt? By selling a non-core line of business and pursuing an exchange of cash and stock for the debt, it will largely put the issue behind them. Despite this, the stock barely moved on the news and the company garnered criticism in some corners for doing something out of necessity that seemed ill-timed.
I have to wonder where things come out a few months because frankly, unlike many companies, I think this is an instance of both companies doing the right thing and more companies should be as thoughtful about getting their business issues under control in this environment instead of treading water.
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Posted by Kevin C. Slocum, Managing Director, kslocum@gtadvisors.com
July 6, 2009
Today Microsoft launched the public beta of its free Hohm home energy monitoring / energy usage web site; the site hopes to help consumers reduce energy consumption. It attempts to answer basic questions such as how is my energy being spent, how do I compare to others and how can I improve? This service hits upon two favorite concepts: “What gets measured gets managed” (usually attributed to Peter Drucker) and that pull marketing is a powerful force for change in industries.
Mass adoption of energy infomatics can be such a catalyst for change. Basic energy consumption information has always been available, yet capital decisions are often not driven by energy efficiency or economy over the long run. We are more upbeat about the broader adoption of energy infomatics because it is the kind of pull marketing that can spur adoption of sensor technologies and wireless networks. Looking at feeds of electricity/oil/gas usage in real time and as a function of human activity can dramatically alter behavior and pave the way for implementation of more sophisticated energy management systems. Anyone who has ridden in an electric or hybrid vehicle can attest to the magnetic pull of watching the real-time estimates of fuel consumption bobble up and down and its impact on driving habits – shutting off instead of idling, coasting instead of accelerating into a stop.
For sensor and communication technology companies, one implication is a stronger pull for wireless sensor networks supplying real time data about home energy usage. Companies already driving smart metering and networking include Trilliant Networks, Sensus Metering Systems Ltd., Lixar (now part of GridPoint), Tendril Networks, Grid Net and GainSpan Corporation. This may seem like a lot of companies, but it is a very large opportunity and it has yet to be determined which mode of deployment or array of features capture market and mindshare.
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Posted by Dennis Gallagher dgallagher@gtadvisors.com
July 6, 2009
So I’ve said the prospective client shouldn’t place a meaningful value on an investment bank’s view of valuation, but we do have views. Valuation is almost always one of the most trying components of a successful transaction. That is never more true than today when public companies are trading a levels board of directors, management, employees and shareholders all struggle to understand.
Nonetheless the valuations are out there with all the information necessary to calculate them up to the minute. Many public companies identify peers in their regulatory filings. So in all environments like the great one we had in the technology world at the end of the decade and the challenging one we face today, there is not just your own company valuation to view, but a collection of others that share some common attributes. Today those valuations are all meager on almost any basis, but they are what they are.
The bottom line is, who cares? You have a business. You need to find ways to continue to make it grow and prosper and if the current prevailing valuation metrics influence how and what is done, then so be it. The focus has to be on the business and doing what is possible with the conditions that exist now and could exist for some time to come.
We believe the current environment is a great time for like-minded managements to seize opportunity. We think it is a time for small and midsized public companies to polish up the PowerPoints and call on potential merger partners about what they are doing today and why they might be even more successful if the combined with the potential partner. Why? Because others are sitting back listening to the talking heads tell them how tough things are and why they are going to remain tough. And they will if you sit there and keep listening instead of seizing the moment.
That doesn’t mean that tactics aren’t important. They are. I said small to midsized companies, because I believe valuations are low and thus the equity currency of a small to midsized company in today’s environment with its appreciation potential can be more valuable than cash. The reasons are too numerous to tackle in this post, but high on the list is that a merger for stock does not represent an exit value. It can actually represent a new beginning for well matched partners.
Shareholders of all types need to get over current market valuations and find a way to do what is right for the company and assume valuation will take care of itself if they do so.
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Posted by Kevin C. Slocum, Managing Director, kslocum@gtadvisors.com
July 6, 2009
Whenever you are involved in a transaction for a corporate client, whether you have been engaged to raise capital, sell the company, or complete a strategic acquisition, the topic of valuation looms large. The investment banker is always asked how much or how little will be paid? It is a question that we all would prefer to avoid because we don’t have the answer. It lies in the hands of the interested parties and all we can do is work aggressively to create an environment that fosters the best possible deal for the client.
The investment banker wants the best outcome possible because favorable outcomes, both generate a transaction fee and create a reference for future business opportunities. Company management that pose this question to a prospective investment bank when they are making their decision to hire a banker should hear one thing; the description about what it the would-be banker does during its prosecution of a transaction that ensures the company will get the best deal possible.
This can range from aligning the investment bank’s fee structure with the goals of the client, to describing transaction process steps that are both different than the competition and effective in meeting client goals. Other factors such as track record are of course important in demonstrating the bank knows something about your business or has had visible success in reaching the type of companies that should be interested in the prospective client’s business are also important.
Nonetheless potential clients always ask the valuation question. If the banker is worth his salt, the answers will be worded to avoid elimination from the selection process. Perhaps that is how they should be judged. Were you comfortable with the answer you got even though you did not get the specific answer you were seeking. If so, maybe that is a pretty good sign of the banker’s negotiation skills.
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Posted by Kevin C. Slocum, Managing Director, kslocum@gtadvisors.com
July 1, 2009
Although generally non-lethal, electrical stun guns or tasers, which incapacitate targets with high voltage, low current shocks, do sometimes result in death. According to Amnesty International, more than 351 people in the United States have died since June 2001 after being shocked by police using tasers. Reports of misuse of tasers by law enforcement officers causing injury and death have made headlines and, in some cases, resulted in costly civil actions. For example, the city of Moberly, MO recently put into place a moratorium on the use of stun guns and agreed to pay $2.4 million to the family of Stanley Harlan, 23, who died after being shocked three times for a total of 31 seconds by police during a traffic stop argument last summer. The attorney for Harlan’s family has stated that he is also considering bringing legal action against Taser International, the maker of the weapon.
In another well-publicized incident, a 72 year-old woman was recently shocked during a traffic stop. Although the woman claimed in an interview with a local television station that she gave the officer no reason to use his weapon, a video recording from the dashboard-mounted camera showed that she was consistently uncooperative and even dared him to use the stun gun on more than one occasion.
Responding to a growing legal threat, Taser recently announced the introduction of AXON (Autonomous eXtended On-Officer Network), a video recording system that can be worn on the body. This product, which is expected to be generally available next June, will serve the same purpose as the dashboard video camera, now commonly used in police patrol vehicles. Use of the AXON system will provide a deterrent to police abuse, because officers know that their actions are being recorded. At the same time, the AXON recordings give a third party view of what the officer sees and can protect conscientious policemen and women from baseless accusations. The AXON system also provides users with additional benefits including facilitating reporting and as a safer way to look around corners in dangerous settings.
Taser AXON head-cam
The use of the personal video recording devices promises significant benefits to law enforcement. According to a recent article in Popular Mechanics, headset camera systems used during pilot programs in the United Kingdom appeared to have resulted in a reduction in the number of false complaints, produced more guilty pleas and cut down on time spent taking statements or writing up reports.
The price of the AXON headset and handheld display is expected to be under $1,000 (vs. up to $3,000 for dashboard camera system). Taser is also marketing a version of the system for military use.
We see significant market opportunities in personal mobile surveillance for law enforcement, military and first responders. Additional applications might include sporting officials who wish to document misbehaving fans, coaches or players, or in helmet cams that offer coaches the ability to see what a quarterback sees during a game or practice. As in all video surveillance applications, manufacturers that are able to focus on certain high-end segments of the market will be able to avoid commoditization and achieve higher margins for their businesses. The rest will be dominated by low-cost, primarily Asian competitors.
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Posted by Peter Yu ptyu@gtadvisors.com
