Moving to diversify its place in the Auto-ID market, Zebra Technologies Corp. late last week said it has agreed to acquire WhereNet Corp., a purveyor of active radio frequency identification (RFID) technology, for $126 million in cash.
The deal would provide Zebra -- a major player in the bar coding and emerging passive RFID printing/encoding spaces -- with real-time locating system (RTLS) technology used to find and track high-value assets across the supply chain and within factories and distribution centers. RTLS, which combines wireless RFID tags, fixed-position antennas, and Web-enabled software, has found a home in the automotive market, where many leading companies, such as Ford and Nissan, use the technology in parts replenishment, vehicle inventory tracking, truck yard management, and work-in-process applications. WhereNet is said to be a market leader in RTLS, with roughly 150 installations worldwide, including a major deployment at the Port of Long Beach, CA.
Active RFID complements Zebra's existing Auto-ID businesses, and could help accelerate the company's growth as the market for bar code technology plateaus and passive RFID struggles to establish a foothold beyond retail and defense compliance initiatives. And Zebra could use a boost: The company posted revenues of $549.6 million for the nine-month period ended September 30, up only 5.1% from the like period of 2005.
WhereNet "provides a new platform for growth," noted Edward Kaplan, Zebra's chairman and chief executive officer, during a conference call Friday morning with analysts to discuss the pending acquisition. WhereNet's leading-position RTLS will enable Zebra to broaden its intellectual property portfolio and expand into key industrial manufacturing vertical markets such as automotive and aerospace and defense, as well gain entry to key players in the logistics space, the company said. "It all adds up to an excellent fit for Zebra," Kaplan said.
The active RFID market is expected to grow at a 29% annual clip -- from $550 million in 2006 to $6.8 billion in 2016, according to researcher IdTechEx. The RTLS segment is projected by the Yankee Group to reach $1.6 billion in 2010, from $15 million in 2005.
WhereNet's products and technology offer "natural adjacency" to Zebra's existing bar code and passive RFID businesses, noted Philip Gerskovich, Zebra's senior vice president of corporate development. By securing a place in the higher-growth active RFID space, Zebra will also be positioned to leverage WhereNet's direct channel for selling passive RFID and bar code technologies (and vice versa) to new customers, he added.
The acquisition, which is expected to close later this month, would give privately held, 10-year-old WhereNet access to the capital and global sales and marketing resources necessary to extend its industry-leading position, Zebra officials said. Zebra, according to analysts participating on the call, will have $450 million in its coffers after the WhereNet acquisition is completed.
"We will be leveraging our worldwide footprint to help [WhereNet] move quickly throughout the world," Gerskovich stated.
WhereNet, which recorded revenues of $36 million in 2006, is on a 2007 run rate of approximately $50 million, which would translate to nearly 40% year-over-year growth. The company reached profitability in the fourth quarter of 2006, Gerskovich said.
While WhereNet has not achieved such strong annual growth during the last few years, Gerskovich said that Zebra was comfortable with the projection given RTLS's high barrier of entry and WhereNet's projected bookings from new and existing accounts.
"We believe that WhereNet occupies a broad center of the market and is by far the largest company in the market that has products that apply most broadly to what commercial customers want," Gerskovich said, in response to an analyst's question. WhereNet, he added, has delivered "differentiated value to the market" that pivots around optimized product cost, read accuracy, ease of installation, and battery life.
The acquisition comes eight months after WhereNet rival Savi Technology was acquired by Lockheed Martin Corp. for a reported $100 million. In contrast to WhereNet, Savi focuses primarily on the defense sector. Another major player in the fragmented active RFID market is I.D. Systems, analysts have said.
While there were competing offers for WhereNet, the deal was not completed in a "traditional auction process," Kaplan said. "There were serious discussions for three months," he added, without naming rival suitors.
Zebra has grown over its nearly 40-year history through acquisition. And with $450 million in cash on its books, that strategy isn't expected to change, the company indicated.
While not showing his hand, Gerskovich said the company continues to search for complementary technologies that help customers track product movements through the supply chain -- from raw materials to finished goods -- that are aimed primarily at commercial applications.
"Zebra has a well-earned reputation as a careful acquirer of companies," said Gerskovich, who joined the company in March 2005 from Eastman Kodak. "We want to keep looking for good ... product and customer sets that complement what we do."
Last year, Zebra acquired $10 million in RFID intellectual property from BTG, a UK technology patent holding company; earlier it purchased Eltron and Comtec, makers of desktop label printers and mobile bar codes, respectively.
For now, WhereNet will be run as separate business under the existing management team, Gerskovich said. "The first year we will work hard to identify opportunities in sales and marketing to leverage each company's business," he said. "We believe the WhereNet team has shown itself to be very capable in the last decade -- establishing from scratch and building a leading company in the category."