$189M later, fiber-optics firm to be acquired
Atlanta Business Chronicle - by Justin Rubner Staff Writer
In late 1999, Bijan Khosravi struck gold. He had just sold the California company he co-founded, fiber-optics equipment-maker Siara Systems, for $4.3 billion. He made millions.
It was the height of the Internet boom and companies making the Internet faster were thriving. The aggressive Iranian-born telecom entrepreneur was thinking big.
He moved to Atlanta and in 2000 started Movaz Networks Inc., a company that promised to be the next big thing in fiber-optic networks, which transmit data via light instead of electricity.
Khosravi expected to raise cash quickly, build the company, and then exit by going public on Nasdaq within three years. Movaz became one of the most heavily funded private companies in Georgia history, raising $189 million in venture capital and millions in debt financing.
But on June 6, Movaz announced it was to be sold to a German fiber-optics firm, ADVA Optical Networking, for about $76 million -- 60 percent less than Movaz raised in venture capital.
Several observers in Atlanta's technology community expressed surprise with the transaction. Movaz, even during the nuclear winter of telecom, was expected to do far more grandiose things.
But Khosravi defends the sale price. An ex-Nortel Networks Corp. executive, he noted that someone investing in Nortel (NYSE: NT) during the height of the fiber-optics boom in 2000 would have paid nearly $100 per share. Today, Nortel is trading at just over $2 per share.
Nonetheless, funds invested early on in the company "were not recovered," Khosravi said. Those early players included Oak Investment Partners L.P., Menlo Ventures L.P. and others. By the end of 2001, Movaz had already raised $82 million.
The most recent investors, he said, will be "paid back," including firms that infused Movaz with $20 million just months before the acquisition.
Khosravi says his investors were patient. Others surmise they experienced "investor fatigue."
"I think he was highly encouraged to sell," said David Nour of Atlanta-based business development firm The Nour Group Inc.
Six years is a long time to be in survival mode, especially in a business that requires so much money to make money, Nour and others say. Telecom infrastructure is an expensive proposition, and fiber-optics is even more so.
Movaz makes "multiplexers" that shoot beams of light through networks, and optical "switches" that manage the connectivity of those beams of light. Companies such as Comcast Corp. (Nasdaq: CMCSA) use Movaz equipment on their networks. And the government, including the Georgia Board of Regents, uses Movaz to connect universities.
"We're not a software company," Khosravi said. "We build lasers. It's very capital-intensive."
The deal, he said confidently in an interview June 12, was "not a sellout." Armed with PowerPoint slides, he explained that the sale -- or "merger," as he called it -- was the best option for both Movaz and Atlanta. Movaz's operation in Atlanta, he said, will stay intact. And even though Khosravi will relinquish his CEO post and pursue other entrepreneurial challenges, he is actively working on making ADVA's worldwide headquarters here.
Khosravi said the ADVA-Movaz merger will make the company the third-biggest fiber-optics equipment seller in the world. The combined entity posted $219 million in revenue last year and has 800 employees. While ADVA brings a strong presence in Europe, Movaz brings a strong presence in the United States.
If Movaz had gone public, he said, the company would be entering the Nasdaq with about $56 million in 2005 sales. Not only do markets not reward small players, Khosravi said, but in today's climate of consolidation, it would be an upward march to compete against French giant Alcatel (NYSE: ALA), which is expected to buy Lucent for $13.4 billion.
He calls an initial public offering "the worst thing we could've done."
Khosravi stresses that Movaz will be a long-term investment. He still is a shareholder and plans to be one for a long time.
One investor, Tim Weingarten of Palo Alto, Calif.-based Worldview Technology Partners -- Movaz's biggest funder, to the tune of $50 million -- still is a shareholder, too. The transaction, he said, was not a liquidity event, but rather an "interim step" that will yield much higher results next year.
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