PE Firm Marlin Buys BIOS Provider Phoenix Technologies

| About: Phoenix Technologies (PTEC)

By Brenon Daly

Perhaps it was inevitable. Following the firing of CEO Woody Hobbs earlier this year and the subsequent divestment of three noncore businesses, BIOS maker Phoenix Technologies (PTEC) has itself been acquired. Los Angeles-based private equity firm Marlin Equity Partners offered $3.85 per share, giving the proposed deal an equity value of $139m. (Phoenix held $40m of cash, giving the transaction an enterprise value of $99m). The bid represents a 27% premium over Tuesday’s closing price.

Despite its recent troubles, and the seemingly cyclical nature of its business that has resulted in regular boom and bust periods, Phoenix remains by far the independent market leader in the core systems software marketplace, in particular BIOS software, as required by all Wintel PCs. BIOS remains a vital point of control for OS and desktop management. But under pressure from Intel and open source alternatives, the company has tried on numerous occasions – without any noticeable success – to diversify. That has usually resulted in Phoenix taking its eye off the ball of its core business, which entails maintaining relationships with the big PC vendors as well as the white-box original design manufacturers (ODMs) from Taiwan.

Revenue in the third quarter declined 16% year over year to $13.7m, but Phoenix scraped together a small operating profit, its first since 2008. Ninety staff were cut during the quarter, taking the firm’s total down to 313. Future growth depends on the take-up from OEMs and ODMs of its latest product, SecureCore Tiano 2.0, which began shipping in late March. Phoenix claims 50 wins so far and is working on a further 80 projects for this design cycle. The first systems using the new version should reach the market in fiscal 2011.

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