Target: Savi Technology
Seller: Vector Capital
Buyer: Lockheed Martin
Price: Approximately $400 million
Advisor: Morgan Stanley
Legal counsel: Fenwick & West
A deal that went against the grain
during the technology bubble era has now paid big dividends for San Francisco-based Vector Capital. Earlier this month the firm agreed to sell Savi Technology to Lockheed Martin in a transaction that the firm claims is an affirmation of its spinout strategy.
While Vector and Lockheed declined to disclose any financial terms of the sale, several reports peg the price at approximately $400 million in cash. The boards of directors of both Lockheed Martin and Savi parent company Infolink Systems have approved the sale, which is expected to close by the end of the second quarter.
Sunnyvale, Calif.-based Savi Technology provides active radio frequency identification (RFID) products and services for both military and civilian use. Its products include a variety of tags for monitoring and security as well as enterprise software products and customer services. The United States military has used these tags to quickly count its inventory in the field, while shipping companies can keep track of cargo using these tags. United Parcel Service was an early investor in the
Vector helped Savi’s CEO, Vic Verma, spin the company out of Raytheon in 1999. At the time, it put Vector in a world of its own among Silicon Valley firms.
“In 1999, all the focus was on technology,” said Alex Slusky, managing partner of Vector Capital. “The business has little to nothing to do with the Internet. The vast majority of tech investment firms in Silicon Valley wouldn’t have spent five minutes on [a deal like this]. Focusing on a business that actually had revenue and profits was also unorthodox in 1999… It did not fit the zeitgeist of Silicon Valley.”
Following the investment, Vector went to work expanding Savi’s offerings. At the time it was acquired in 1999, the company’s only main product line was RFID tags and readers. Over the next several years, Vector invested in the development of middleware and application software for tracking, security and logistics applications. The services that the company offers today are a combination of software, RFID devices and implementation services.
A number of potential suitors approached Vector to buy the company, although the firm was also wrestling with the possibility of an IPO. “It was a wrenchingly difficult decision,” said Slusky.
Ultimately, though, the firm saw too many barriers for Savi to be a successful public company. “I think it’s hard to be a smallish public company today with Sarbanes-Oxley and all the other impediments that have been constructed over the last few years,” he said. “At the end of the day we all concluded that a sale would enable the management team to build out the business.”
If the reports of the sale price are true, the investors’ return on the deal would be substantial. According to a 2001 Reuters report, the management team cinched the initial spinout with $11 million of private equity funding, which was augmented with subsequent investments. Vector, though, did not disclose the firm’s return on the investment.
The successful exit follows what is becoming a similar pattern for Vector. Last month, the firm sold Intel-spinout LANDesk Group to Avocent Corp. for $416 million.
Other recent liquidity events include a $69 million IPO of Corel Corp., an Ottawa-based software developer, which went public earlier this month, as well as the sale of Register.com’s corporate services division to strategic buyer Corporation Services Co.
Vector, which considers its strategy to be a mix of venture capital and buyout investing, focuses on the software and IT sectors. It specializes in buyouts, spinouts and recapitalizations of technology businesses. Last year the firm closed its latest fund, Vector Capital III, with $337 million. —M.S.