By Brenon Daly
Having watched at least three of its rivals get acquired in recent years, Meru Networks is now aiming for the other exit: a public offering. The WLAN equipment maker filed its IPO paperwork on Friday for an $86m offering to be led by Bank of America Merrill Lynch, with co-managers Robert W. Baird & Co, Cowen & Co, JMP Securities and ThinkEquity. Meru plans to trade on the NYSE under the ticker MERU. (Incidentally, the company was one we put on our list of IPO candidates for 2010 in our recently published 2010 M&A Outlook – Security and networks.)
If Meru does manage to make it onto the public market, it will reverse the flow of deals in the sector. In recent years, a large publicly traded rival (Symbol Technologies (SBL)) and two other competing startups (Colubris Networks and Trapeze Networks) have all been acquired. Those trade sales have valued the WLAN equipment vendors at a range of 2.1-3x trailing 12-month (TTM) sales.
We noted a year and a half ago that all of the transactions probably meant that Meru would have trouble finding a buyer, except among public market investors. Not that Meru hasn’t kicked around a possible sale in the past. Rumors have tied it to both Juniper Networks (NYSE:JNPR) and Foundry. The Foundry relationship seems to have died off since Foundry sold to Brocade Communications (NASDAQ:BRCD). According to Meru’s S-1, Foundry/Brocade accounted for a full 35% of its revenue in 2007, but that level has fallen to less than 10% now.
With Meru aiming to hit the market in 2010, we suspect that it will be hoping to have a stronger offering than publicly traded rival Aruba Networks (NASDAQ:ARUN), which initially priced its shares in its March 2007 offering at $11 each. Although Aruba traded above the offer price for almost a year, it broke issue in February 2008 and has not traded above the initial price since then. That said, the stock is nearing that level, changing hands at about $10.65 in midday trading Tuesday. It has more than quadrupled in 2009. The dramatic rebound in Aruba shares has pushed the firm’s valuation to 4.6x TTM sales. Applying that same multiple to Meru’s $67m TTM sales gives the company a valuation of about $310m.