Mayan Networks has junked one acquisition, completed another -- and is once again rumored to be calling it quits

October 31, 2001

5 Min Read
Is Mayan Done Yet?

Is it the case of the company that refused to die? Whatever the case may be, the tale of Mayan Networks Inc. is one of the strangest in the world of optical startups.

Two years ago, almost to the day, Mayan was celebrating a $60 million third round of financing. Today, after several strategic shifts, a failed reverse merger, and one completed merger, rumors are surfacing that the company may now be closing its doors for good. Sources say that the company has closed its San Jose office, laid off most of its staff, and relocated the few people who remain to an office in Union City, Calif.

But who really knows? After all, this is a company that has averted near-death before.

Let's start at the beginning. Mayan Networks was one of the first in a crop of startups going after the next-generation Sonet market in 1998. Riding the wave of optical networking hype, the company raised more than $90 million in three rounds of equity financing from big names like Amerindo Investment Advisors Inc., Berkeley International Capital Corporation, Brentwood Venture Capital, New Enterprise Associates (NEA), Oak Investment Partners, and U.S. Venture Partners (see Sonet: Prêt-A-Porter).

But these fundraising successes may have represented the pinnacle of Mayan's existence. As the market heated up, the company insisted it was holding out for an IPO, while competitors like Siara (acquired by Redback Networks Inc. [Nasdaq: RBAK]), Cyras (acquired by Ciena Corp. [Nasdaq: CIEN]), and Cerent (acquired by Cisco Systems Inc. [Nasdaq: CSCO]) were all being snapped up for billions of dollars.

Three years later, the market landscape has drastically changed. The competitive local exchange carrier (CLEC) customers, which were targeted to buy much of the next-generation gear and expected to generate a $5 billion market, have mostly disappeared (see Mayan Ruins?). The IPO market has dried up. Venture capital has became scarcer. Mayan became one of the first optical startups to lay off workers to control costs back in February 2001.

"The company was basically done back in February when the story about our layoffs first broke," says one former Mayan employee who didn’t want to be named. "We had pretty much stopped development of our original product back then."

But Mayan continued to put on a game face, despite the fact that product development had essentially been stopped. In March it announced a reverse merger (a reverse merger is one in which a private company buys a public company) with publicly traded Ariel Corp. (OTC BB:ADSP.OB), a maker of remote-access gear. The company said the strategy was to combine the next-generation Sonet features of Mayan's Unifier SMX with the cheap remote access interfaces of Ariel’s product to make an Internet device for voice services.

By summer, the board of directors decided to add a services component to the company and used its cash position to initiate another acquisition. In June, it started talks to acquire Vital Networks, which was a subsidiary of General DataComm Industries Inc. (GDC). The deal officially closed on September 4, 2001, with Mayan acquiring Vital for $23.5 million (see Mayan Makes Vital Buy).

Vital specializes in providing network management and design services to large enterprises and service providers. In 2000 it took in $48 million in revenues for its parent company, and now, as a subsidiary of Mayan, it is expected to generate over $40 million next year, says Esmond Goei, CEO of Mayan.

"We decided that the equipment space didn’t look very stable,” says Goei. "And the service business looked to be a bigger opportunity."

Meanwhile, the Ariel acquisition was falling apart and the board of directors decided to abandon all development of a hardware product. Investors in the convertible round started to pull their funds, according to an unnamed source close to the company. Finally, on October 16, 2001, the Ariel acquisition was officially called off.

The big question now is: what does this mean for Vital?

The relationship between Mayan and Vital is fuzzy at best. While Goei says that he sees great potential in Vital Networks’ service business, he is less clear about how the two companies would work together. Most of Mayan’s pared-down technical team has already been moved over to Vital Networks, and Goei says the plan is for Vital to retain its name and operate as a separate entity from Mayan.

“Mayan is the parent company, and Vital is the subsidiary,” he says. “But we’re really not sure what Mayan’s role is going to be, going forward. We’ve terminated our equipment business, but we aren’t certain where we go as far as the business with Vital Networks. The scenarios we had thought about before September 11th have changed now.”

But now rumors abound that the company is closing its doors for good, and possibly selling the newly acquired Vital Networks to pay off creditors. Exactly how much cash is left is unknown, and Goei wouldn't comment on the cash position. In fact, Goei wouldn't even say how many people work for either Mayan or Vital Networks.

Employees with unrealized income have gotten a letter explaining their responsibilities to the Internal Revenue Service due to "the closing of Mayan Networks," says one source.

The matter has left many former Mayan workers, also company shareholders, wondering what the company is doing.

"To be honest, I don’t think they have any clue what’s going on there," says one former worker who left the company back in August. “I was just glad to get out and find a company that is actually working on building a product."

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com

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