Pushing Grass Valley Back To Profitability

Grass Valley is back — with a new owner and a new boss.

In a deal announced last July, a San Francisco private equity firm Francisco Partners acquired most of Grass Valley from the publicly traded Technicolor in a deal valued at around $100 mllion. (The Francisco buy excluded the headend and transmission units.)

The new boss is CEO Alain Andreoli, an operating partner at Francisco. Prior to joining the firm, he was president of Sun Microsystems Europe, which represented 40% of Sun’s business before it was absorbed by Oracle.

A turnaround expert, Andreoli has also worked for a string of high-tech ventures, including Texas Instruments, StorageTeks, Verio, McData, XioTech and Hubwoo.

In this interview with TVNewsCheck, Andreoli says that a leaner Grass Valley will continue to entice customers here and abroad with a broad lineup of video production and infrastructure products in the hope of returning the company profitability “fairly quickly.” The company is looking to leverage its expertise to provide design and development services to clients, he says. And while the company is open to new products, he adds, camcorders will definitely not be among them.

An edited transcript:

What was so attractive about the video technology space to you and Francisco Partners?

This is a traditional space where we believe there is a lot of innovation that is going to transform the industry. It is going to get more IT-centric and IT is an area that Francisco Partners knows well. Therefore, Francisco believed that this was a space they should look at, and they dedicated a few people for a couple of years, and that led to the acquisition of Grass Valley.

We believe there is an opportunity to offer more complete solutions instead of only point products. So this is an opportunity both for the customer to migrate more quickly, and for the vendor to have a more holistic approach to the customer.

Your deal with Technicolor was unusual. You gave them a note for $80 million and Technicolor contributed $26 million for a piece of the back end. Why was the deal structured in such an unusual way?

I am not commenting. I have not been part of the negotiations between the two parties.

From the public disclosures, it says that Grass Valley, in 2009, lost $70 million on revenue of $350 million. What’s the financial outlook?

Now that we are a private company, we don’t intend to give details on our numbers. We have an integrated suite of products going from the cameras, to the switchers, to the routers, to the servers, to the storage, to the editors. It’s a very cohesive set of products. And we believe that we can make this activity profitable fairly quickly.

As you know, a significant restructuring has been done by Technicolor, and this leads us to believe that we are very close to returning the company into profitability. The second half has been pretty good. We have seen that the market was starting to turn. So we are optimistic about the opportunity here.

When you say restructuring, do you mean downsizing of the company?

Yes. Technicolor had done downsizing of the Grass Valley operations before we acquired it.

You described a pretty broad line of products. Are you committed to all those lines right now, or are you focusing on certain ones?

We are committed to the Grass Valley business, to the whole suite of products that our customers enjoy. Now, like any company, we are certainly going to go through a product-line analysis and look at acquisitions to complement this offering and look at products that we don’t believe are strategic. We will be going through this portfolio over the year and eventually come to some conclusions.

I understand about 70% of your revenue comes from outside the United States. Is that correct?

Yes.

Do you see that changing in the next two or three years?

I don’t think so. It more or less reflects the market, and we are a truly global business. Our business in the U.S. is doing very well. We’ve had very, very good progress this year. We believe that outside of the U.S. the most promising markets are in the emerging markets — the Middle East, Russia, Southeast Asia, Brazil, Latin America and China and India later on. So I think for the next couple of years, we’re probably going to continue with a relatively similar split of our revenue.

My publication covers TV broadcasting in the United States. How do you see that marketplace evolving?

We see that the market is going through a significant transformation in terms of its distribution channels. So certainly there will be changes on the horizon. We are very committed to work with the television networks. I have already had the chance to meet with a few of them, and have seen how much Grass Valley products are of interest to them. So we intend to cover all the segments of the market.

Do you see any new areas that you’d like to get into?

We are certainly going through that exercise at the moment, so I will not comment. But certainly, when solutions are software-centric, centered around fixing customer issues, you will see us being more and more active.

At your press conference in Secaucus last month, you said that you’ll be emphasizing professional services a little bit more. What do you mean by that?

We don’t want to be a system integrator. We don’t want to do the work that they do. However, we believe that we can help our customers with our expertise as a broadcast vendor. We are one of the very few, if not the only vendor, who has a complete range of products, and a complete range of experts that spans all the product lines. Therefore, we want our customers to know that we would be happy to act as the architects of their solutions whenever these solutions are centered around Grass products. Our professional services business is very small. We don’t intend to make it a very big thing. But we intend really to have a layer of activity around design, development and architecture of solutions for our customers, and not only be a vendor of products.

This is sort of like the question, which of your children do you love the best? Are there one or two products that are really hot right now for the company — that you’re really going to drive in 2011?

All of our products are very important. They work as a complete solution for the customer. Clearly, we are very happy with the performance of our server product line. This is experiencing significant growth right now. We are very pleased with our switchers product line. We see that we have a very strong presence in that market, and there is a lot to come with developments and new technology. We see that we are making interesting progress with our cameras. We see that our router business…. We’ll be making some announcements here. It’s going to come back pretty strong.And I should also mention our editor business, Edius, which is an interesting piece of the business as well.

You were in and out of the ENG camcorder business with Infinity. Are you out of that business for good?

Yes, we are.

So you really do love all your children.

We do. I mean, all the children belong to the family, and we have made this decision upfront in deciding to take this part of Grass Valley. So we believe this part of Grass Valley is very cohesive, and a reasonable opportunity for all children to play together. But over time, there may be new children joining us. We are still young enough to have new ones. And some children may decide to go and live elsewhere in the future. But this is not like we are coming here to sell members of the family. We are really coming with an approach to build a business over the long term. We intend to take the core and make it flourish as an integrated business plan.

You say that 15% of your revenue will go toward R&D. Is that really a practical thing for a company that’s has been on shaky financial ground?

You know, this is not a situation where we come to milk the cow. This is a situation where we come to build a business. And in technology, a business is centered around innovation, and Grass Valley has a very strong legacy as a pioneer and an innovator in the business. And we want this not only to continue, but to be even stronger in the future.

Do you want to tip your hand at what you’ll be showing at NAB?

Oh no. Not at all. No. We have decided this year to really show our products at the last minute, and this is not actually my decision. It is really the team who has decided to do it that way, and I cannot make any comments. The team would be hitting me pretty hard if I did.