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Management Buyouts Blossom

A string of new component startups includes Headwall (ex-Agilent) and ANDevices & InPhenix (out of Axon)

September 30, 2003

4 Min Read
Management Buyouts Blossom

As startups continue to die off, their inventions either evaporate or disappear via auction into someone else's patent portfolio. But some investors and executives are still finding crafty ways to keep startups alive, as seen in the breakup of Axon Photonics and the rescue of Headwall Photonics Inc. from Agilent.

It's been an ongoing trend during the downturn. Management buyouts have been popular, as seen in the revival of Aifotec Fiberoptics GmbH after the original Aifotec was bought by Finisar Corp. (Nasdaq: FNSR). Other examples include Firstwave Secure Intelligent Optical Networks Inc., which is re-emerging as Lambda Optical Systems Inc. after being rescued by VCs. (See Germany's Aifotec Is Reborn, Firstwave Given Second Wind and Telecom Workers Take Control.)

How Headwall Headed Out
The Headwall buyout benefitted from timing and some foresight, as the company's management decided to preempt Agilent by leaving before they could be cut. "If we had done it during the boom, they would have said no. If we waited too much longer, they may have made a decision for us," says Larry Barstow, Headwall CEO.

Headwall started the year as Agilent's gratings division. Founded in 1976 as American Holographic Inc., the group shipped to a variety of industries including medical and defense, with telecom getting extra emphasis after Agilent acquired the company in 2000 for an undisclosed sum.

Once Agilent began trimming divisions, however, anything with such varied applications seemed likely to go. Moreover, the gratings group wasn't close to Agilent's home, being based in Fitchburg, Mass., about an hour north of Boston. "The feeling was that we were remote and they were planning to downsize," Barstow says.

Barstow, then a general manager at Agilent, helped devise the management buyout. The pitch was that Agilent could continue to have a gratings supplier without having to fund the group's efforts in medical and other industries. Agilent bought into the idea and even contributed to the company's $8 million funding.

The team completed the spinoff in May and announced in July that they'd chosen the name Headwall (see Gratings Group Splits from Agilent). It's a mountaineering term, not a comment on the hometown of the Boston Red Sox.

The 25-employee company still boasts Agilent as a customer and drops the name frequently. "The Agilent heritage helps differentiate us from a lot of small companies," Barstow says.

Axon Splits Up
Axon spawned not one but two management buyouts. "The company split in two. The people that were aligned with the passives group went with the passives group, and the people aligned with the actives group stayed with the actives group," says Gene Covell, a former Axonite.

Specifically: After the company closed in February, its Arrayed Waveguide Gratings (AWGs) division was reborn as ANDevices Inc. Axon's Semiconductor Optical Amplifiers (SOAs) went to newly created firm InPhenix Corp., where Covell is director of marketing. InPhenix also inherited a SLED program started during Axon's final days.

Axon's original plan was to be a hybrid integration company, combining the silica-on-silicon AWGs and the indium phosphide SOAs into a single ceramic package (see Photonic Integrated Circuits). The company started by selling the two products separately -- and never got any further.

Axon did win a major contract. The bad news: It was for the doomed LambdaRouter all-optical switch developed by Lucent Technologies Inc. (NYSE: LU) (see Lucent Terminates the LambdaRouter).

"When LambdaRouter went away, that hurt us a bit. We invested a lot of time and money trying to get that business. We went through the whole reliability and qualification [process]," Covell says.

As time wore on and the business languished, Axon faced a bit of an identity crisis.

"It was difficult between the two groups, deciding how much money should go to each side," Covell says. Moreover, in scouting for funding last year, each half of Axon had lined up some investors who weren't that interested in the other half. In the end, it seemed best to isolate the halves into separate companies.

Like Headwall, InPhenix is counting on non-telecom revenues for survival. "Now InPhenix is focused, like a lot of companies, on medical and military," Covell says.

So, while the company continues selling SOAs, it has bigger hopes for the SLEDs, which began shipping in August. Coincidentally, one of InPhenix's SLED rivals will be Exalos AG, which was also born from the fracturing of a bigger company, Opto Speed SA (see Opto Speed Splinters).

— Craig Matsumoto, Senior Editor, Light Reading

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