Platinum Equity has acquired modem maker U.S. Robotics.

August 15, 2005

Platinum Equity said on Monday it was acquiring modem maker U.S. Robotics in an all-cash transaction that would position the company for future growth.

The terms of the deal were not disclosed by the privately held company, but the Los Angeles Times said that USR chief executive Joseph J. Hartnett told an interviewer last year that he wanted to sell the business for between $30 million to $50 million.

U.S. Robotics used to be one of the major forces in the PC communications business, with modems that powered many bulletin board systems before the growth of the web.

USR also introduced the Palm Pilot before the company was acquired by 3Com in 1997 for $6 billion and spun off in 2000. USR, Palm, and operating system provider PalmSource are all now separate companies.

While the company has lost much of its status since the early days of dial-up modems, it has managed to transition into a provider of broadband and wireless modems, wireless routers, and PC cards, to meet the demands of today’s Internet hardware needs.

‘We believe we can accelerate growth by identifying complementary strategic acquisitions.’

-Jim Levitas,

“Obviously USRobotics is a shadow of what it used to be when it dominated the modem business,” said Martin Reynolds, an analyst with Gartner. “What we’ve got now is a company where it’s not a big opportunity in itself, but if you combine it with some other pieces, there’s a chance for the channel and the brand. It’s almost like purchasing a component to build into something a bit bigger.”

Stellar Reputation

Platinum Equity sees potential in its new investment.

“U.S. Robotics has a stellar reputation for quality and innovation, and is one of the premier brand names in the technology industry,” said Tom Gores, chairman of Los Angeles-based Platinum Equity.

U.S. Robotics will retain its independence, but will also benefit from the financial resources and M&A capabilities of Platinum Equity, according to Mr. Hartnett.

“Platinum’s approach will empower the U.S. Robotics management team to execute its business strategy while providing the resources and support necessary to grow,” he said.

Mr. Hartnett predicted that USR’s growth will come both organically and from acquisitions. While there may be some consolidation in the company’s modem line, USR will also acquire other complementary companies that fit with its product road map and can leverage its channel, brand, and distribution capabilities.

The management team and employee base will stay the same. U.S. Robotics will remain at its Chicago headquarters and continue to produce similar products.

Past Purchases

Platinum Equity has made other technology acquisitions, buying CompuCom Systems for $254 million in 2004. The company also bought Altura Communication Solutions, a voice-messaging provider, from Fujitsu, in 2001.

USR may be able to leverage some of the technology from Platinum’s CompuCom and Altura investments, according to Mr. Hartnett, who expects the acquisition to close within the next four weeks. USR is already “aggressively pursuing” potential acquisition targets, he added, even before the transaction closes.

He said the company hasn’t looked at restarting its handheld PDA business, but it’s “not off the radar screen. Everything will be considered.”

Platinum Equity wanted USR because of its strong brand name and because it offered a potential platform for future acquisitions.

At the Forefront

“U.S. Robotics has been at the forefront of modem technology for more than three decades, connecting millions of users around the world to the Internet,” said Jim Levitas, senior vice president of mergers and acquisitions at Platinum.

“As new broadband, wireless, and security applications evolve, the company is well-positioned to grow,” he added. “We believe we can accelerate growth by identifying complementary strategic acquisitions.”

U.S. Robotics already has an installed base in more than 80 countries around the world. The company was founded in 1976 by three University of Chicago students working out of a garage in Skokie, Illinois.

They took the corporate name from Isaac Asimov’s science fiction novel I, Robot, which described a firm called U.S. Robots and Mechanical Men as the “greatest company in the known universe.”