Irvine’s Printronix Inc., a maker of industrial printers for manufacturers and retailers, is breathing a little easier.
A $108 million buyout by San Francisco private equity firm Vector Capital is set to give the company some cover,by rescuing it from a technology that didn’t quite pan out and by cutting regulatory compliance spending that had eaten into profits.
Vector, which manages about $2 billion in investments, buys or takes stakes in smaller public technology companies with sales of $50 million to $300 million.
It seeks out long-standing companies with an established list of customers.
Printronix, one of OC’s oldest tech companies with yearly sales of $130 million, fit the bill.
The company, whose printers are used by automakers, banks and chain stores, has seen choppy results for years.
On Wall Street, Printronix’s stock sees a lowly 10,000 shares or so in average trading. Rival Zebra Technologies Corp. of Vernon Hill, Ill., sees about 60 times that.
“It’s an orphaned company,” Amish Mehta, a partner at Vector Capital who headed the deal, said of Printronix. “They tried very hard as a public company for several years. But the stock wasn’t followed by any equity analysts and it didn’t move on announcements.”
Well, except for the announcement of the buyout.
Vector offered 18% more than what Printronix was trading at before the deal, leading to a spike in trading of the company’s shares.
It had a market value of about $100 million before the deal and was worth $105 million last week.
The deal is expected to close at the end of the year. Printronix’s management is set to have a 10% stake in the company and stay in place.
Some investors thought the company could have sold for more, according to founder and Chief Executive Robert Kleist.
“We had mixed results,” he said. “Some are happy, some are not. They feel that if we had waited longer we could have gotten a better price.”
That’s because Printronix’s shares are off about 20% in the past year or so.
Talk of going private stretched back for two years at Printronix after a much-touted product push failed to live up to expectations.
The company had pinned its hopes on a printing and labeling system that was expected to replace the barcode for tracking and scanning merchandise.
Radio frequency identification tags, known as RFID, use a chip and a tiny antenna to store and send information. The tags could be read by computers from a distance, unlike a barcode that had to be scanned with a handheld machine. The tags also hold more data than ordinary bar codes, such as shipping records.
The benefits for retailers are numerous: They are said to help cut lost or stolen inventory, track the exact location of items if they have to be recalled and generate more accurate sales data.
Back in 2003, Printronix was poised to be a leader in RFID after it landed a deal to sell printers, readers and software to Wal-Mart Stores Inc.
Wal-Mart, known for using technology to slash costs, was an early adopter at its distribution centers.
“We were a leader in deploying printers for the initial roll out,” Kleist said
Industry watchers thought that other big retailers would follow suit. They didn’t.
“The industry expected RFID to rapidly spread,” Kleist said. “Unfortunately it didn’t happen. There never has been a rapid, widespread deployment of RFID.”
If RFID had hit it big, Printronix would have shared the market with only one competitor, Zebra Technologies.
“From an investment standpoint, that was a big disappointment,” Kleist said. “For us, that could have meant up to 50% sales growth.”
Widespread use failed because RFID printing systems were costly to install for big retailers and the tags were too expensive to stick on cheaper items, Kleist said.
He said he still has hopes for RFID.
“It has been a good thing overall,” Kleist said. “We think someday it’s going to deploy, but it’s going to accelerate at a very slow rate.”
Another reason why Printronix went private was to be rid of the burdensome costs of staying in compliance with government reporting regulations.
Printronix saw the costs of Sarbanes-Oxley requirements eat away millions of dollars in profits, Kleist said.
“Being a small public company is more difficult today,” Kleist said. “We are kind of collateral damage from the Enron disaster because we are one of the smallest public companies that had to comply with (federal regulations) that came out of it.”
Printronix hired accountants, consultants and put in place a new record-keeping system since Sarbanes-Oxley was adopted in 2002. Its costs have gone up more than five-fold since then, Kleist said.
“It’s not only a big expense, it’s a distraction,” he said. “The senior executives spend their time first on compliance, and second on running the company.”
Vector Capital is going to focus in on Printronix’s bread-and-butter sales and may scout acquisitions for printing technologies and software.
Kliest, 79, said he’s looking forward to running Printronix as a private company.
He has been the company’s biggest shareholder.
He said he’s not looking to retire anytime soon, even after more than 30 years at the business he founded in 1974.
“I can’t retire,” Kleist said. “I don’t know how to play golf.”
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Deal Done, Despite Credit Fallout
A tighter debt market has meant fewer private equity deals. Vector Capital’s $108 million buy of Irvine’s Printronix Inc. is an exception, though it felt some fallout.
The buy is being done with debt from a Silicon Valley bank as well as Vector’s own cash, said Amish Mehta, partner at the San Francisco-based firm.
“It’s definitely more difficult to do a deal in the last three or four months than in the first part of the year because of the tougher credit environment,” Mehta said. “In the past we would have been able to raise more debt for a buy.”
Still, the deal wasn’t repriced during negotiations, he said.
“It’s a very difficult debt market today and Vector was able to do what other companies could not,” said Robert Kleist, Printronix’s chief executive. “It was a doable deal.”
Vector worked the deal with tighter credit in mind.
“In this situation, we knew the amount of leverage we would be able to get,” Mehta said. “We were not trying to overreach.”
The investment firm goes after small public companies that could benefit from going private. It typically holds onto its investments for at least five years, Mehta said.
,Sarah Tolkoff
