Kymata: For Sale?

Scottish components startup Kymata Ltd. may be about to be sold for a knock-down price, to judge from an article in today's Financial Times.

The article says that Kymata is in talks about "a possible trade sale" that would value the company at "about £300m" (US$425 million) and that J.P. Morgan & Co. (Nasdaq: JPM) is handling the deal.

It's possible this information was leaked to the Financial Times in an effort to flush out other potential buyers for Kymata. In other words, a deal may be imminent.

Light Reading has not been able to verify if any serious bidders have emerged, though rumors of a possible sale to Alcatel Optronics (Nasdaq: ALAO; Paris: CGO.PA) have been circulating for months.

Other potential buyers cited by the Financial Times include Corning Inc. (NYSE: GLW), IBM Corp. (NYSE: IBM), and Marconi Communications PLC (Nasdaq/London: MONI). IBM already has a small stake in Kymata (see IBM Moves Into Integrated Optics).

The price of £300 million in the Financial Times might be optimistic. The value of companies making arrayed waveguide gratings (AWGs) has slumped since last year. Bookham Technology PLC (Nasdaq: BKHM; London: BHM), another company in the same market, has seen its share price plummet from about $80 last summer to $6.20 today, giving it a market capitalization of $740 million. And Bookham is a more mature company that has made it to the public markets and has an established customer base. It's unlikely that Kymata, a private company, has built a substantial revenue base.

Kymata has an estimated staff size of 500. With an average annual expense per employee of $100,000, low for an optical company of Kymata's size, the company's burn rate is likely to be at least $5 million per month.

Kymata has raised a total of $162 million in funding to date, the latest round of $67 million coming last November when its valuation was put at around $500 million (see Kymata Snares Another $67M). Not long after the last round of funding, Kymata's CEO, Brendan Hyland, stepped down under mysterious circumstances (see Kymata CEO to Step Down).

Selling at or below $400 million means it's likely a lot of investors will be losing money or, at best, breaking even. With the current telecom slowdown, the prospect of growing revenues appears remote.

— Peter Heywood, Founding Editor, Light Reading
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