Ember CEO: Silicon Labs Acquisition for $72M Is “Right Thing for the Company”

5/21/12Follow @gthuang

It seems like it takes most tech companies about 10 years to run their course—if they survive the first few years, that is. Boston-based Ember is no exception.

The wireless-networking firm said today it is being acquired by Silicon Laboratories (NASDAQ: SLAB) of Austin, TX, for an initial price of $72 million plus earnouts. Silicon Labs makes chips for consumer devices like TVs and cell phones, as well as applications in telecom, industrial, and automotive markets. The acquisition appears to be a good fit, as Ember’s technology—particularly its wireless networking software—will strengthen and broaden Silicon Labs’ offerings across industries.

The deal seems to be an OK, but not great, outcome for Ember’s investors. Over the years, the firm raised some $89 million from venture capitalists and strategic partners including Polaris Venture Partners, GrandBanks Capital, RRE Ventures, Vulcan Capital, STMicroelectronics, Hitachi, and MIT.

Ember CEO Bob LeFort defends the acquisition on three counts. One, “This was more than a fair deal financially,” he says, in terms of the multiple of the company’s revenue. Two, he says, “This is also about the employees and the potential, and it’s the right thing for the company.” And three, he says, the firm’s investors saw Silicon Labs as the right acquirer at the right time, because Ember needed more investment to reach a bigger market. While everyone loves a $15 billion IPO, he says, “It just made sense. This is not a reluctant deal for them.”

Indeed, Bob Metcalfe of Polaris—an Ember board member and a professor at UT Austin—calls Silicon Labs “the perfect partner going forward,” in terms of its product line (more on that below).

The deal is pretty significant for those of us who’ve followed Ember since its early days. The company started in 2001, the brainchild of MIT grads Rob Poor and Andy Wheeler. Their vision was to build software for wirelessly networked sensors and systems for supply-chain management, factories, and other applications.

Poor and Wheeler eventually moved on to other companies, but Ember evolved to become a maker of software, chips, and tools for secure wireless networking. Its main market is smart energy—working with utility companies and selling its technology to smart-meter makers like Itron and Landis+Gyr, so the meters can talk to the utilities and help make the power grid more efficient and reliable.

Reached by e-mail, Poor says, “From what I can tell it’s a great thing.” Citing Ember’s talent, technology, and reputation in the wireless industry, the firm’s co-founder elaborates: “The Silicon Labs acquisition means that Ember will have the financial and marketing resources to do even more. Also—as someone who cares deeply about the people that make up a company—I’m really glad about the acquisition since it will give everyone at Ember a little more room to breathe and innovate.”

The vast majority of Ember’s 60-odd employees are staying through the merger, LeFort says, and the company is keeping its offices in Boston and Cambridge, England. LeFort’s new title will be general manager for wireless mesh networking, within the “wireless embedded systems” business unit of Silicon Labs, headed by vice president Diwakar Vishakhadatta.

The deal has been in the works for the past few months. “We saw this market is starting to really take hold,” LeFort says. “But in order to continue our leadership, it was going to take a significant investment. We needed a larger company backing us.”

As he explains, when a whole country like England is planning to deploy smart-meter technologies, and is using Ember’s products, officials “want to make sure we have the resources to be able to support that level of pressure.” The same goes for Comcast’s home security products, for which Ember is the main supplier of wireless networking technology. Big customers need a big commitment to things like continuous supply and investments in future products. “Those are very hard for us to do as a standalone entity,” LeFort says.

It sounds like Ember will provide much-needed expertise in wireless networking software—particularly for self-organizing mesh networks—while learning a lot from Silicon Labs about developing chips and hardware for broader applications. Smart energy is an emerging market area for Silicon Labs, but it’s just one of many.

So how does Ember plan to remain innovative and deal with the inevitable challenges of being integrated into a bigger company? For starters, Ember “doesn’t fit into some other procedure or process” at the firm, LeFort says. “They’re a young company [started in 1996]. This isn’t an IBM that has 100 years of experience.” Also, both sides harp on the cultural fit between the firms—does anyone not say that?—starting with a focus on products and innovation.

“We still look and think of ourselves as a small company built on innovation,” says Silicon Labs’ Vishakhadatta. From the Ember side, LeFort adds, “We’re going to be able to have much more focus on what we do well.”

To that end, Ember is expected to contribute $10-12 million in revenue in the second half of 2012. That figure is a bit down from the company’s numbers in late 2010, when it was projecting $30-35 million in sales for the year (its first profitable one), up from $13 million in 2009. At the time, LeFort said Ember was not looking to be acquired. “We should manage our business every day as if we are going to IPO and be the next Intel,” he said. “If something else happens along the way that makes sense, then so be it.”

Which brings us to today. I asked Metcalfe, who now lives in Austin during the school year, whether the Ember deal is a “score one for Austin” moment. He says he doesn’t keep score among different cities, as he isn’t into regional economic development. “I am into innovation and what’s best for startups out of research universities,” he writes. “Hm, score one for MIT?”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com. Follow @gthuang

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