Oct 03, 2007This article was originally published by RFID Update.
October 3, 2007—Printronix, a leading manufacturer of RFID smart label printer/encoders, plus thermal label and impact printers, announced yesterday it is being acquired by private equity firm Vector Capital for $108 million. The deal, expected to close in December or January, takes Printronix, a closely-held public company, private. Robert Kleist, Printronix's president, CEO, and largest shareholder, will keep his positions with the company and, along with other senior managers, will retain about 9.9 percent ownership.
"The intention is to continue with the current strategy of the company, including the current product strategy," Kleist said during Printronix's conference call to discuss the deal. The comment would seem to preclude the idea that the printer/encoder or other business units would be sold off. However, disappointing RFID printer/encoder sales likely played a large role in the company's decision to sell.
On its website, Vector Capital says, "We work in partnership with management to navigate companies through transitions in their business. As a private investor we spin out non-core businesses from corporations, buy founder-owned companies, and fix balance sheets through recapitalizations. As a public investor we take strategic stakes in undervalued companies." Vector Capital manages more than $2 billion in capital and holds stakes primarily in technology companies.
Printronix has been in an extended cost-cutting period as it struggles with declining revenues across its business. Revenues for its most-recent fiscal year (which closed in March) were essentially flat with the previous year. Since then, Printronix reported lower revenue (but higher income) for its next quarter. Printronix derives much of its revenue from non-RFID printer sales to IBM, which have been declining. In the conference call, Kleist and CFO George Harwood cited difficulties in the RFID segment.
"Our RFID revenue has plateaued. The acceleration of the Wal-Mart market has not been what was hoped," said Harwood, referring to opportunities to sell printer/encoders to Wal-Mart suppliers who must comply with RFID shipment labeling requirements.
"RFID in the supply chain has not met the industry's expectations for growth," said Kleist.
The price Vector Capital paid for Printronix does not reflect a company with bright growth prospects, analysts said. The $108 million price tag is less than the $128.4 million in revenue Printronix reported for its last full fiscal year. Companies commonly sell for a multiple of their revenues, but in this case the price-to-revenue ratio is 0.84, which analysts noted does not reflect the value of Printronix's real estate and cash holdings.
By comparison, when Printronix rival Zebra Technologies acquired fast-growing RTLS provider WhereNet earlier this year (see Zebra Acquires Active RFID Provider WhereNet), the $126 million purchase price was 3.5 times WhereNet's previous-year revenues of $36 million. Symbol Technologies (now part of Motorola) is believed to have paid a much higher multiple when it acquired Matrics for $240 million in 2004, when RFID expectations were running high.
Kleist and Harwood said Printronix began exploring a sale more than two years ago and that all potential strategic buyers in the industry were contacted. Harwood said the company had several alternatives, but did not say if other offers were received from strategic (industry) or financial buyers. The deal is reflective of a trend in American business in which public companies are going private. Companies often cite freedom from Sarbanes-Oxley regulations and shareholder pressures as providing the flexibility needed to improve competitiveness.
Analysts on the Printronix conference call criticized the deal in their comments to Kleist and Harwood, questioning the sale price, timing, market conditions, and motivations of insider stockholders, including Kleist. Even though Kleist and other senior executives will collectively retain 9.9 percent ownership, Harwood noted that these insiders are actually selling about 75 percent of their shares, which means the acquisition represented a lucrative opportunity for them.
