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MDSI Exits Public Status in Style

August 11

A pioneer in the use of wireless technologies to manage utility field workforces, publicly-traded MDSI has accepted a rich $67 million cash buy-out offer from private equity group Vista Equity Partners.

The companyís sale is a rewarding conclusion to a rocky trip. After its start in 1992, MDSI got early traction for its mobility solutions with large utilities, leading a market that also featured Utility Partners. Both flourished for a while then hit hard times, partly due to changing wireless technologies, partly due to abrupt pull-backs in IT spending by utilities, and partly due to self-inflicted wounds. For instance, at one point MDSIís original managers decided that blowing a bundle on the purchase of a London cab company made strategic sense.

After its stock peaked at about $80 per share in Y2K techno-hysteria, things ran fast downhill to about $2 later that year, then began a slow slog back led by new, careful management, only achieving stabilized sales and profitability in 2004. Meanwhile, competitor Utility Partners entered bankruptcy and finally found shelter in a microcap called Virynet.

While Vista paid a fat premium -- $8 per share on something that had been trading for months in the $5 range -- in retrospect the stock looks somewhat undervalued. 2004 sales were up to $50 million for the first time in years, gross margin is now a healthy 55%, net income is at least positive if only 3% of sales, and importantly, cash is huge at $20 million with no debt. All that for what was then a market cap of $42 million.

Bottom line: we still suspect Vista may have indeed paid a bit much, but nonetheless, MDSIís management team deserves generous kudos for a patient and effective turn-around.


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