Roomba Maker Sweeps Into Cheaper Robotics

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When robotic vacuum maker iRobot Corp. scooped up its smaller Pasadena rival, Evolution Robotics, last week it went dirty and down – market.

The $74 million acquisition gave the Bedford, Mass. robotic pioneer a broader product lineup that will help it sell less expensive self-propelled and intelligent vacuum cleaners as it seeks to reverse a decline in earnings.

IRobot’s flagship product is the Roomba, a robotic vacuum for carpet that retails for $300. Other iRobot models sell for even more. Evolution’s leading model is the Mint, which sweeps or washes hard floors using either wet or dry Swiffer cloths. It retails for just $200.

Brian Rittenbur, an analyst with CRT Capital Group in Nashville, Tenn., said iRobot’s management decided to get out of the low-price end of the market two years ago, increasing prices and taking their products out of big box retailers.

“With this acquisition, they are moving down to the middle or low end again,” he said. “They are having fantastic growth, but you can only sell so many upscale models. At some point, you need to broaden the market.”

In a conference call following the acquisition, iRobot Chief Executive Colin Angle said Evolution’s less expensive navigation technology was a major factor in the acquisition.

IRobot models’ navigation is controlled by button-like sensors on the edge of the vacuum. Evolution’s Mint uses a system of visual simultaneous localization and mapping, or vSlam, with infrared dots and cameras calculating its position. The vSlam system sounds more complicated but is cheaper to manufacture.

Angle also noted that vSlam is emerging as the dominant system for various types of robots.

Following the acquisition, the Evolution brand will be phased out and within a year all products will bear the iRobot name. Angle said the pool of potential customers for the two companies’ products have little overlap.

“We’ve got vacuums for scrubbing and now wet and dry for sweeping, which have their own independent customer sets,” he said. “We see this as very complementary and not as cannibalizing one business or the other.”

Evolution Robotics declined to comment for this story, referring questions to iRobot. Management at iRobot was not made available for comment but provided information via e-mail.

IRobot said it plans to keep the Pasadena office open as a research center, though it would not say whether it would reduce staff or move some of the 30 workers there.

For now, Paolo Pirjanian, Evolution’s chief executive, will join iRobot as chief technology officer and continue to work in Pasadena. Boards at both companies have approved the acquisition, which is expected to close this year.

Floor traction

Evolution Robotics was founded at the Pasadena incubator IdeaLab in 2001. In addition to backing from IdeaLab, the company obtained funding from Vodafone Ventures, CMEA Ventures and Shea Ventures.

The company started as a technology research firm and gradually moved into the floor-cleaning business. Likewise, iRobot started in robot development and, in addition to its cleaning products, has manufactured robots for medical diagnosis, military, police and underwater exploration uses.

Rittenbur said he believes cutbacks in defense as the United States pulls out of Afghanistan – where iRobot products have been used for bomb detection – contributed to the acquisistion.

“The only place they are getting traction is the vacuum market,” he said. “They have to grow in one direction. And there are a limited number of companies they could acquire.”

Rittenbur has a neutral rating on iRobot’s stock, which suffered a major drop in February after the company issued guidance that its military robot sales would decline during 2012. Since then, revenue has grown 2.5 percent for the first half of the year, but earnings have declined by nearly 50 percent.

Rittenbur believes the acquisition last week may eventually prove its worth because of Evolution’s technology, but in the short term it won’t help financially.

Rittenbur estimates Evolution has annual revenue of $20 million, a relatively small amount compared to iRobot’s revenue of $460 million last year. IRobot expects the acquisition will boost its revenue by $4 million to $6 million in the remainder of this year, and $22 million to $24 million next year.

“They paid three times revenue for a cleaning robot that uses Swiffer pads,” Rittenbur said. “There is some core technology for navigation that they wanted, but what they are getting over the next 12 months is highly dilutive of earnings.”

One sweetner in the deal: IRobot management said the acquisition will include about $6 million in Evolution Robotics net operating losses it can use to lower its own tax burden.

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