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Companies Cautious as M & A; Activity Heats Up

Companies Cautious as M & A; Activity Heats Up By SLAV KANDYBA Staff Reporter No more Vermont log cabins, at least not for Vitesse Semiconductor Corp. The Camarillo-based manufacturer knows better now than to buy them it did in the past, and the results were bad and officials there are remembering that as mergers and acquisitions in the tech industry pick up steam again this year. And Vitesse is not alone. As technology stocks are rising, firms along the 101 Tech Corridor have cash and want to spend it to grow their businesses. But the lessons they learned from the dot-com heyday, especially about valuations of the companies they acquire, are making them more guarded. That was the general consensus from officials at Vitesse, Advanced Photonix and United Online who spoke at the Gold Coast Venture Forum in Camarillo Jan. 22. And they were straight to the point. “Everybody’s pitching a deal,” said Yatin Mody, vice president of finance at Vitesse and one of the speakers. In the times preceding the burst of the dot-com bubble, Vitesse was making many acquisitions, Mody said. Sometimes the purchases were based on “dubious” reasons such as that Vermont log cabin staffed with four engineers and supposed potential. “Things changed from 1998 to 1999 people are losing profitability,” Mody said. “Valuations came down a lot in the last few years. We’re not actively looking.” Vitesse, whose chips are used in telecommunications devices, bought Cicada Semiconductor Corp. for $66 million, doubling its revenue and giving it faster data networks to compete with larger rivals. Robert V. Johnson, president of Agoura Hills-based IS West, a business-to-business broadband ISP, said companies like Vitesse and his own are looking carefully now into how an acquisition would fit into the firm’s “profile.” Johnson attended the forum and said companies are more interested in asset deals rather than buying whole, to avoid bookkeeping hassles and other problems the acquired company may have had. “If it is an asset-only purchase, you end up with a relatively clean deal from a buyer’s standpoint,” he said. IS West bought Camarillo-based VCNet in an asset deal and integrated the company’s equipment into its own infrastructure within months, Johnson said. Mike Balducci, vice president and controller at Westlake Village-based United Online, who engineered the merger of the low-cost Internet providers Juno and NetZero into United Online, said his company has cash and is going after asset acquisitions as well. “We’re very profitable, haven’t done anything in the last year and want to,” he said. Richard Kurtz, chairman and CEO of Advanced Photonix, a Camarillo-based optics company traded on the American Stock Exchange, said his company acquired two small businesses in the past few years, and had no plans to get anymore until about five months ago. That’s because, “after nine years, we’re no closer to taking over a market,” he said. Brent Reinke, a corporate attorney at the international law firm of Reed Smith, said he is being approached by companies interested in mergers and acquisitions. But valuations are the main thing being considered.

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