Under pressure from a California hedge fund, iRobot Corp. is exiting the business that first put it on the technology map: military robots.
The Bedford maker of Roomba self-guided home vacuums said it is selling its defense and security division, also known as D&S, to Arlington Capital Partners, a Washington, D.C.-based private equity firm, for $45 million. The division made the robots that searched the wreckage of the World Trade Center in Manhattan after 9/11, probed roadside bombs in Iraq, and explored the crippled Fukushima Daiichi nuclear power plant in Japan.
iRobot will now focus almost entirely on its line of consumer robots, including the popular Roomba vacuum cleaners.
Chief executive Colin Angle said in a statement the company began shopping for a buyer nearly two years ago. “We’ve concluded the sale of the business to Arlington Capital Partners will maximize shareholder value by allowing us to focus on our much larger Home segment,’’ Angle said.
The deal follows two months of pressure from Red Mountain Capital Partners, a California hedge fund that owns around 6.1 percent of iRobot stock. It has repeatedly urged the company to sell off the military robot business, as well as a separate line of “remote presence’’ robots.
In December Red Mountain wrote a letter to Angle criticizing “iRobot’s history of poor stock price performance, lack of capital allocation discipline, and shareholder-unfriendly corporate governance practices.’’
Its shares underperformed a benchmark index of small cap stocks for most of 2015, but then surged after Red Mountain publicized its interest in the company. iRobot stock closed Thursday at $34.41, up 6 percent on the Nasdaq stock exchange.
In January, Red Mountain asked for two board seats and threatened “an unnecessary election contest’’ at the company’s annual meeting in February if iRobot did not comply.
In a statement, Red Mountain managing partner Willem Mesdag, hailed the sale of the business, but said his firm will not let up the pressure on iRobot.
“We continue to have serious concerns about capital allocation, returns on invested capital, and governance,’’ Mesdag said. “We are engaged in a constructive dialogue with the company, and continue to consider our options.’’
Meanwhile, the military robot business will operate as a separate company headed by Sean Bielat, a former iRobot executive and a major in the US Marine Corps Reserve who twice unsuccessfully ran for a congressional seat in Massachusetts. Tom Frost, currently iRobot’s general manager of the defense and security business, will serve as president. No name has yet been chosen for the new company, which will remain in Bedford.
Bielat said splitting the company into separate civilian and military businesses offered the best prospects for future growth. “There was a sense that there were opportunities for each, but that they’d do better separately,’’ Bielat said.
Dan Kara, a robotics analyst at ABI Research Inc., said iRobot’s military machines were popular during the wars in Iraq and Afghanistan, where they were mainly used to search for booby traps and improvised explosives. iRobot has sold about 5,000 such robots.
But “it’s not 2006 any more,’’ Kara said. As a result, iRobot’s military business has dried up, from 35 percent of revenues 10 years ago, to less than 10 percent today.
Still, Bielat said there will soon be new demand for the kind of robots the division makes. The Pentagon has announced plans for the “Common Robotics System-Individual,’’ a new generation of lightweight robots that would become standard equipment for infantry forces. The D&S company will also keep busy making parts and upgrades for existing military machines.
Home robots brought in 91 percent of iRobot’s 2014 revenues of $557 million. Kara said the worldwide home-robot market is expected to more than double, to $2.6 billion by 2020, from around $1 billion in revenue in 2015. iRobot is the dominant seller of consumer robots.
iRobot didn’t accede to Red Mountain’s demand that the company shut down its Ava line of remote presence robots, which carry a camera, microphone, and video screen. Ava robots can be used in hospitals to let patients consult with a doctor a thousand miles away, or let an executive patrol the hallways of his company’s satellite offices. Kara said the market for such robots is small.
During a Thursday conference call, Angle said iRobot hopes to strike deals with other firms that can exploit the Ava technology, but added that iRobot is backing away from further development of the system. “Financially, we’re no longer making a significant investment in the engineering side of remote presence,’’ he said.
Angle also gave a preview of the company’s 2015 performance, saying sales during the holiday season were strong and that fourth-quarter results will be at the high end of expectations. In October, the company predicted fourth-quarter earnings of 56 cents a share, on sales of $203 million. and full-year earnings of $1.25 to $1.45, with revenue ranging between $625 million and $635 million.The company is expected to report financial results next week.
Hiawatha Bray can be reached at hiawatha.bray@globe.com. Follow him on Twitter @GlobeTechLab. Nidhi Subbaraman can be reached at nidhi.subbaraman@globe.com. Follow her on Twitter @NidhiSubs.
