The biggest 2009 deal for a local technology startup came after Networks in Motion Inc. opted to keep the gang together with a buyout instead of testing a rebounding but still fickle market for public offerings.
“Our overall exit plan had been to try to go public,” said Steven Petilli, an initial investor in the company and head of business development for the mobile software maker. “We had done very well and had several profitable years behind us.”
Instead, Aliso Viejo-based Networks in Motion took a $170 million buyout from Maryland’s TeleCommunication Systems Inc. that closed in December.
Networks in Motion makes navigation and local search software for phones and other mobile devices.
Its software provides what’s called location-based services, looking up maps, offering driving directions and searching for local businesses.
Newer versions touch on social networking with “friend finders” and “child trackers” that allow parents to keep tabs on their kids’ whereabouts. Other features veer into entertainment, including searches for movies, reviews and local events.
TeleCommunication Systems also makes mobile software that’s sold to governments and wireless telecommunications companies.
Networks in Motion, which started in 2000, had raised around $17 million in funding from San Diego’s Mission Ventures, Redpoint Ventures of Menlo Park and Sutter Hill Ventures of Palo Alto. The company became profitable two years ago.
It was one of the county’s more advanced startups and was watched as a public offering candidate.
The county hasn’t seen a major public offering since late 2007, when Mission Viejo-based nursing home operator Ensign Group Inc. went public, raising $64 million.
The last local tech offering was from Irvine memory products maker Netlist Inc., which raised $44 million in 2006.
‘Made Sense’
Networks in Motion’s buyout price and a pledge to keep the company intact “made sense for not only our founders and employees but also our VC firms,” said Doug Antone, chief executive until the deal closed.
“There was a payday for all of our employees, which we were very proud to make happen,” said Antone, now a TeleCommunication Systems senior vice president and division manager.
A plan to make Networks in Motion the navigation and telematics division of TeleCommunication Systems clinched the deal, according to Antone.
“We wanted no layoffs and no decimating the team,” he said.
Networks in Motion is keeping its local operations with around 150 workers.
Early investor Petilli stayed on in the same business development role. Cofounder Michael Sheha, who started the company with wife Angie, took on a lead engineering role as chief technology officer for TeleCommunication Systems.
Even Networks in Motions’ finance chief, Gregg Marston, stayed on as Antone’s right-hand numbers guy.
“It’s an unusual thing—that kind of position is almost always eliminated in this situation,” Antone said. “They have a lot of respect for the Networks in Motion management team.”
The company wasn’t looking to be bought, according to Antone.
“Our position had always been that we are really not for sale,” he said.
Networks in Motion itself had been on the hunt for acquisitions—it picked up two in the past year.
The idea was to grow the company’s sales in preparation for a public offering. Networks in Motion had 2009 sales of about $75 million.
“We had been on the acquisition trail looking at another company that we could bring in to make it a $100 million company,” Antone said.
The Networks in Motion acquisition gave TeleCommunication Systems a third major business line.
TeleCommunication Systems counts about half of the market for emergency services. If a person dials 911, the company’s technology routes the call to the nearest emergency response center.
The company, which had a recent market value of around $430 million, also hosts big data centers for sending and receiving text messages.
Wireless carriers license the software and pay to access its hosting services in order to provide text messaging to consumers.
TeleCommunication Systems sees about $300 million in yearly sales.
It was looking to get deeper into navigation and location-based software for wireless service providers.
“They had very small volume success in handset-based navigation,” Petilli said. “They had some deployments on really small carriers, but nothing on the scale that we have done.”
Customers
Networks in Motion’s customers include Verizon Communications Inc.’s Verizon Wireless, AT&T Inc., Sprint Nextel Corp., Alltel Wireless, United States Cellular Corp. and Sony Ericsson Mobile Communications AB.
The company’s software also powers AAA Mobile, a navigation and trip-planning program used by the American Automobile Association.
The acquisition gave Networks in Motion entrance into a market it was targeting known as telematics, or the development of navigation and search software for use in internal computers in automobiles.
A small former telematics unit of Autodesk Inc. in Oakland, which TeleCom-munication Systems bought for $25 million last year, now reports to Antone.
“Telematics is a new business we were exploring anyway,” Petilli said. “(TeleCom-munication Systems) already had some traction in the market and their team of engineers is now under our business unit.”
