playbook-The Second Time’s the Charm-October 2011
Talk to most entrepreneurs long enough and the conversation will inevitably roll around to selling their business. The least interesting people will murmur only about the dollars. The rest care about getting a payday, too, but they also reflect on how there is so much more at stake. “The funny thing about the emotional part of the decision is that it’s so schizophrenic,” venture capitalist Ben Horowitz wrote this year. “How can you reconcile Dr. Stay-the-Course and Mr. Sell-the-Thing?”
Matt Jennings has been through such a dilemma twice in the last four years, most recently when he sold Utiligent, his Minneapolis-based application development firm, to Digi International in August. Given that Minnetonka-headquartered Digi (Nasdaq: DGII) didn’t issue a news release or file a Form 8-K, one can safely conclude that the transaction was immaterial to the company’s attorneys and accountants. Rest assured, however, that it was exceedingly material to Jennings.
Jennings, who still refers to himself as an entrepreneur, is the new vice president for Digi’s iDigi Applications business unit. There he heads an effort to develop Web-based custom applications for customers that install Digi’s communication adapters, sensors, and other electronic hardware. Jennings doesn’t share much regarding the terms of the acquisition, other than to say that he at least earned back his Utiligent start-up capital. But there is no question that for Digi, it was less a decision to acquire and more a version of “acqui-hire” to bring Jennings on board.
The decision to throw in with Digi was all about its ability to make a difference in his market, Jennings says. Utiligent was barely a start-up, dating back to February, and Jennings had just one colleague, technology developer James Poehler. Joining Digi provided him with access to customers, branding, market reach, technical know-how, and other resources he did not have as the CEO of a two-person company. Plus, Jennings says, Digi appears to be led by people who are plenty entrepreneurial, even though its sales have grown well above $50 million a quarter.
Now 41, Jennings has been the owner of small businesses for most of his adult life, and he has found a keen interest in machine-to-machine (M2M) communication. Utiligent was founded to build Web-based software systems that gather and use data generated by equipment such as pool pumps, refrigerators, and convenience-store coffee pots so that businesses can “communicate” with and manage that equipment electronically and remotely.
An example of a M2M application is one that Jennings brought to Digi in the Utiligent deal. Later this year, owners of HotSpring spas can wirelessly connect them to the Web. This allows a homeowner to fire up the hot tub from his Droid or iPhone, before guests arrive. Such connectivity is nice to have for the homeowner, and great for a HotSpring dealer to have: The customer’s tub also can communicate with the desktop of a maintenance scheduler.
What’s more, HotSpring’s parent, California-based Watkins Manufacturing, though comfortable enough turning over this initiative to a two-person firm, is even happier to now be working with Digi, which is selling an increasing array of products that can enable the wireless M2M market to develop.
When Jennings and Digi CEO Joe Dunsmore started meeting earlier this year, Jennings says, they found that they had a common view. What Digi needed to leverage its new iDigi brand was expertise and leadership to develop and offer inexpensive applications. Digi’s market share could expand so much faster if Digi could make customer data easier to see, store, and analyze. Jennings and Utiligent represented an opportunity for Digi to move that initiative along. By early August, the deal was done, and Jennings and Poehler moved into Digi’s headquarters.
It was a bit of dÃ©jÃ vu for Jennings. When I met him in 1999, he was running an M2M applications company called Global Tier. Jennings and his team developed a relationship with Restaurant Technologies, Inc. (RTI), a hot-growth Mendota Heights– based company that pioneered services for managing cooking oil for thousands of McDonald’s stores and other restaurants. The idea of selling customers on the ability to remotely monitor kitchen equipment and the quality of cooking oil was compelling to RTI. In 2007, Jennings struck a deal and brought his team on board.
It didn’t work out as planned, an experience Jennings simply calls “disappointing.” In 2010, he left RTI; his noncompete provisions rolled off at the end of the year. No option seemed remotely as interesting to him as launching another M2M applications company. And Jennings was confident that he could build awareness in a new brand over time: He’d been once around the track, knew what to do, and was quickly up and running. Within weeks of the February launch, Utiligent had two accounts, including Watkins Manufacturing. Utiligent was ahead of plan and Jennings was optimistic that it was poised for a run.
Selling Utiligent was not in that business plan, Jennings says. He had tried selling a business and working for its new owner once before. And he had approached Digi only to talk about collaboration—sharing some ideas, perhaps, or comarketing in a couple of niches. But it didn’t take long before discussions turned into joining forces through a purchase.
“I told Joe [Dunsmore] once that it is too bad I didn’t know to call Digi in 2007, at the time I did the other deal,” Jennings says. “He said something very interesting. He said they wouldn’t have been ready for us.”
Lee Schafer (lee@sargentadvisorsllc. com) is managing director of Minneapolis-based Sargent Advisors, which guides clients on growth strategy, mergers and acquisitions, and licensing and joint venture opportunities.