Moto’s buy of Broadbus could spur M&A

Motorola (NYSE: MOT) last week agreed to acquire television-on-demand company Broadbus Inc. for about $186 million in cash in a deal that could kick off a flurry of related M&A activity. The transaction should also produce sizable returns for Broadbus investors Battery Ventures, Charles River Ventures (CRV), Comcast Interactive, Star Ventures and Wolf Ventures.

Broadbus is a major player in the television-on-demand market, largely thanks to a RAM-heavy server architecture that is particularly facile for short-form programming. A joint venture with Tandberg Television has helped Broadbus deploy with major cable providers, such as Adelphia, Charter Communications, Comcast, Rogers Cable and Time Warner Cable. It’s worth noting that Broadbus investor and customer Comcast is also a huge customer for Motorola, buying millions of digital cable set-top boxes, cable headends and other equipment.

Motorola’s interest is derived from a gaping hole in its existing video offerings, and a possible belief that it can further Broadbus’ penetration into the telecom market. Motorola also pulled the switch at a good time. Broadbus had been viewed as an IPO candidate for late 2007 or early 2008, though its competitors have experienced recent trading troubles in the aftermarket. Shares of SeaChange International (Nasdaq: SEAC) were down more than 30% since March while Concurrent Computer Corp. (Nasdaq: CCUR) was trading at less than $2 for all of last week.

“Motorola has been making some defensive moves against Cisco Systems, but I think this flips the tables a bit,” says a source familiar with the pending sale.

Cisco-along with Intel-actually tried to invest in some of Broadbus’ early venture capital deals, but was turned down. It is unclear if Cisco made a serious play for Broadbus this time around, but now has targeted Arroyo Video Solutions as an alternative. The price should be cheaper, and Pleasanton, Calif.-based Arroyo is closer to Cisco headquarters in San Jose, Calif., than is Boxborough, Mass.-based Broadbus. Arroyo has raised about $27 million in funding from Comcast, Time Warner, DCM-Doll Capital Management, Foundation Capital and Matrix Partners.

Broadbus has raised $57 million in VC funding since its 1999 inception, including a Series A-1 infusion in 2002 at a pre-money valuation of less than $7 million. Battery Ventures and CRV led that round, with each firm’s deal lead-Todd Dagres and Santo Politi, respectively-having since left to form Spark Capital.

Spark does not have a stake in Broadbus, but the sale will help further validate its focus on early stage companies focused on the convergence of media, entertainment and technology. “We used Broadbus as a bit of a poster child when we were raising the fund,” Dagres says. “It showed that we had gone through a battle together without killing each-other, and had come out with a very well-liked company.”