IRobot Sells Defense Business to Focus on Connected Home Robots

Over the past few years, iRobot’s business has been shifting away from military applications and towards home robots and other areas. Today the company is making a clean break.

The Bedford, MA-based robotics giant (NASDAQ: IRBT) says it’s selling off its defense and security business to private equity firm Arlington Capital Partners. The deal, expected to close in the next few months, could be worth up to $45 million, including milestone payments, and the division will become a privately held standalone company with a new name (as of yet undisclosed).

That’s not a lot of money for a division that gave the world the PackBot (pictured above) and other rough-and-tumble robots used by soldiers and first responders in the field. But since 2012 or so, iRobot has been adapting to defense budget cuts and declining sales of its military robots. That led the company to double down on new robots for consumers (such as the latest Roomba vacuum-cleaning bot), healthcare providers (the RP-VITA for hospital telepresence), and other industries.

Colin Angle, iRobot’s co-founder and longtime CEO, said in a statement: “The divestiture of the Defense & Security business will allow us to focus on the Home Robots business, bring new products to market, continue our expansion in China and build upon successful new marketing campaigns. We are confident that our strategy of focusing on the home will position iRobot for continued growth and success.”

The news comes on the heels of several months of pressure from activist investor Red Mountain Capital Partners, which owns a 6.1 percent stake in iRobot and has been urging the company to focus on home robots and ditch everything else (most recent letter here). Yet others have argued that iRobot was right to resist a change.

The company’s most recent earnings report, from October, shows that for the first three quarters of 2015, iRobot’s revenue was about $410 million (with a profit of $24.8 million). Of that revenue, $384 million came from the home robots business and only $24.5 million came from defense and security. The proportions were similar in the previous year. So divesting the defense business isn’t a big surprise, and it seems to make sense for the company financially.

Nevertheless, it feels like the end of an era. IRobot was started in 1990, and for years military-related robots were its bread and butter. After the success of Roomba in the 2000s, the company’s main business split into home robots and defense robots. Now it looks like iRobot will focus mainly on robots for connected homes, perhaps tied to the Internet of Things wave.

As of October, iRobot’s total projected revenue for 2015 was in the range of $610 million to $615 million. The company’s full-year financial results will be released on Feb. 10.

Meanwhile, the new venture will be led by CEO Sean Bielat, a former iRobot defense and security executive and U.S. Marine officer. Tom Frost, the current senior vice president of the business unit, will serve as president of the new company. It’s not clear yet how many employees will be retained or whether there will be layoffs.

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