Azalea Acquired: Wireless Video Surveillance Deal Examined

Author: John Honovich, Published on May 09, 2010

Azalea Networks, a wireless mesh provider specializing in video surveillance applications was acquired by Aruba Networks, a broad provider of wireless/Wifi solutions for corporations.

The maximum price to be paid for Azalea is approximately $40 Million. However, $13.5 Million is based on future cash payouts on contingent rights. The initial stock purchase of $27 Million is also subject to a number of adjustments (review the 8K for details on the acquisition terms).

Azalea Networks reports raising $27 Million since its inception in 2005 (see company profile and SEC documents). Its last round publicly announced was $15 Million in Q1 2008.

Aruba Networks, the acquirer has published a FAQ on the acquisition including the following key details on Azalea:

  • Claims 25,000 mesh units deployed
  • Claims 140 total customers
  • $5 Million in 2009 revenue
  • About 100 worldwide employees (most in China)
  • Most sales are to China and US
  • Citing IDC, claims to be largest mesh vendor in China
Compare to a 2008 company profile of Azalea where Azalea reports 155 total employees and previous year revenue of $4 Million.

These data points indicate that Azalea recent growth was modest at best and that they had significantly reduced headcount, likely as their 2008 funding was burned. At $5 Million in 2009 revenue and 100 employees (even factoring in lower Chinese salaries), they likely had a significant burn rate.

The acquisition puts Azalea's valuation at 5x to 8x 2009 revenues which is similar to Aruba's own valuation (2009 sales of approximately $200 Million, company valuation of approximately $1 Billion). For a video surveillance focused manufacturer, this is a fairly solid valuation.

However, from the perspective of the investors, this is a fairly flat deal (total invested - $27 Million, acquisition price - $27 to $40 Million).

This acquisition does serve as a benchmark and indicator for other startup video surveillance companies, most notably Firetide who has raised over $50 Million in investment.

We suspect most of these mesh video surveillance companies have under $10 Million in annual revenue as well and will need to find general IT manufacturers to acquire them at valuations necessary to justify their investment.
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