Copper Makes Electrical Wiring Expensive for Los Angeles Electricians

Nine years after its establishment, and following negotiations with a number of potential buyers, the Israeli startup CopperGate Communications has been sold - and this time it's final. The acquisition by Sigma Technologies, with the jaw-dropping price of $200 million, is expected to be formally announced today. That's a pretty profit for the company's investors, who stand to chalk up a profit eight times their original investment.

CopperGate has raised only $25 million from investors to date. The company reportedly considered floating its shares in the past, based on a valuation of $500 million. Boasting sales in the millions of dollars a year since 2006, CopperGate has received - and turned down - quite a few suitors, most recently the dual-listed company Mellanox Technologies.
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CopperGate has chosen Sigma, mainly based on its synergy with the Israeli company. CopperGate develops chipsets for multimedia home networking using existing wiring, while Sigma Designs is a developer of complimentary technology - System-on-a-Chip (SoC) semiconductors for multimedia processing. The plan is to combine the capabilities of the two semiconductors into a unified chip that can provide Internet communications with video processing abilities, like those in cable television converters and video players.

The two companies have worked together over the years: about 8 million converters incorporate CopperGate and Sigma chips.

Moshe Levine, a partner at Tamir Fishman investment house, which invested in the company nine years ago and now owns a 31% share in the company, stands to make a tidy profit from the exit. He is very enthusiastic about the firm's prospects.

"I believe CopperGate will be the engine for the world's digital media in five or six years, with hundreds of thousands of converters using its chips," he said.

Sigma controls 80% of the multimedia chip market, and CopperGate is a leader in communications.

"The two technologies will now be combined into a single brain, resulting in a dramatically lower price, better efficiency and power use, and smaller chips," he said. "The match is natural."

CopperGate CEO Gabi Hilevitz explained the winning synergy between the two companies: Sigma chips process video signals, handle security issues and high-definition visual performance, while CopperGate technology enables communication, and creates a household network based on Internet protocol that supports cable television and copper wire (telephone wire) communication systems. The company also plans to launch a chip that will allow communication via home electrical wiring, Hilevitz added.

CopperGate reported sales of $60 million in 2008, and already has sold $70 million in 2009 - in the midst of an economic crisis. The company has reported a profit for three consecutive years now.

"When you generate that much cash you have to consider the direction of future development," Hilevitz said. "We saw content is going digital, and we saw a demand for multimedia processors, and for transferring (the content) on home networks."

But in spite of press reports to the contrary, Hilevitz denied there has ever been a serious plan to float the company.

"A company considering a flotation has to think about what will happen four to eight quarters down the line. At the time we were dependent on AT&T, our main customer, which accounted for 90% of our business, although this is no longer the case." The banks, he said, felt this was a problematic situation for an IPO. Meanwhile, CopperGate didn't really need the cash.

"There was no point in putting the firm under the kind of pressure involved in being a publicly traded company. Moreover, we had other avenues for raising money other than the public - for instance, investors who were willing to loan us money and invest in CopperGate."

And so, after mulling a variety of options, including raising money from financial investors or buying complimentary technology, at the end of the day, the company opted on the merge.

Hilevitz rejects the idea that high-tech companies can't become large in Israel, and are doomed to be gobbled up by foreign investors while they are still relatively small.

CopperGate, he promised, is an Israeli company that will continue grow and be part of the local landscape.

"The company won't be swallowed up like a drop in the sea by Broadcom or Intel, regardless of what it is called after the merger. We hope that its sales will double, that it will hire hundreds more employees, and bring pride and jobs to the country."