Imagine using hand gestures as a way of interacting with a device such as a car's entertainment system, a computer, a kiosk, or a 3D immersive reality game ‒ no need to physically touch the device. Hand gesture-based solutions like these and the hand tracking and gesture recognition technology that underlies them are areas of expertise for Clay AIR, a company that was founded in Paris, France in 2015, and whose name evokes the imagery of molding clay through hand movements in the air. This technology is also becoming an important facet in virtual and augmented reality applications that enrich user interface experiences by seamlessly integrating virtual objects and information into displays of the real world.
Corum recently announced the acquisition of Clay AIR by Qualcomm, an industry-leading San Diego-based semiconductor company that designs, manufactures, and markets digital wireless telecommunications products and services. Qualcomm, which has devoted time and resources into designing chips that support augmented reality, plans to incorporate Clay AIR's technologies into its new developer platform for building augmented reality applications that are experienced through headgear such as AR/VR helmets and glasses that are tethered to smartphones.
Clay AIR is an example of a company that took advantage of Corum's unique hiatus option, which enables clients to take a pause in the M&A process and then return at a later time when conditions are more favorable for a sale. Corum is the only investment banker that offers a hiatus option as part of its M&A process. Corum initially did a global outreach to find a suitable buyer for Clay AIR. Several major strategics showed interest, but in licensing Clay AIR’s technology rather than buying the company. Clay AIR then opted to go on hiatus and wait for these commercial opportunities to mature ‒‒ something that would significantly increase the company’s valuation basis ‒ before reentering the M&A market.
The initial encounter
Corum Senior Vice President Serge Jonnaert, the point person on the deal, initially encountered Clay AIR at CES, the annual electronics trade show held in Las Vegas. He was fascinated by the company’s technology. Clay AIR had already established a partnership with Qualcomm to integrate their hand tracking and gesture recognition technology into Qualcomm's chipset. They also had an impressive customer list that included Lenovo, Renault, and NXP. Beyond that, Clay AIR had a good market fit and good market recognition, they held patents on their technology, and their hand gesture solutions were seen as excellent ‒ in short, they could “build a better mousetrap.”
So Jonnaert suggested that Clay AIR test the market, and by doing so, calibrate their market value. If conditions were right for a sale, Clay AIR’s founders could do a deal and reap the financial benefits. Those encouragements led to Clay AIR becoming a Corum client.
Jonnaert got to work quickly and contacted a variety of potential buyers in the industrial arena. However, despite interest in Clay AIR’s potential, there was little interest in an outright purchase of the company. Jonnaert recalls, "We approached a lot of the big industrial strategics, and fairly quickly found that because hand motion and gesture recognition is still an emerging technology, companies were hesitant to consider the company a candidate for acquisition.” However, three companies, strategics in the automotive space as well as in the chip and computer interface spaces, did show interest in a commercial relationship with Clay AIR. According to Jonnaert, “They basically came back and instead of offering to buy, they wanted to entertain a commercial relationship like a distribution or licensing deal.”
Going on hiatus
Without an acceptable offer in play for their company, Clay AIR's executives decided to take advantage of Corum's hiatus option. The time out of the M&A market would give the company the opportunity to see if the commercial opportunities from the three companies would actually materialize. If so, Clay AIR's executives felt it would significantly increase the value of their company.
But then something interesting happened. While Clay AIR was on hiatus, they reengaged with Qualcomm to negotiate the next licensing deal. In the process, Qualcomm, not wanting to see Clay AIR's technology end up in the hands of other companies, made overtures for a purchase. In short order, Clay AIR decided to go back to market. Corum then reengaged the other parties that had previously expressed interest. This led to a competitive bidding process in which Qualcomm made the most compelling offer ‒ an offer that led to its successful acquisition of Clay AIR.
The time in hiatus was short but worthwhile. Jonnaert says Clay AIR went into hiatus on April 1 of 2021, reengaged with Qualcomm in August of the same year, and came out of hiatus shortly thereafter. The deal with Qualcomm was done in November, 2021. In acquiring Clay AIR, Qualcomm took ownership of hand gesture and tracking technology that represents the next frontier of human-machine interaction. For Clay AIR, the deal gave them a bigger footprint, and as Jonnaert puts it, “Took some money off the table.”
Taking a hiatus is a good opportunity to address issues that stand in the way of a good offer. In Clay AIR’s case, no acceptable offers for a sale had been made. Instead, there were some commercial offers for distribution and licensing. So Clay AIR decided to use the time in hiatus to see if those opportunities would mature. In other cases, companies need to make more substantive changes, such as changes in company structure or in business strategy, before returning to the M&A market.
Ultimately, what happened during Clay AIR’s hiatus did lead to an attractive purchase offer. The lesson here is if Corum’s M&A process does not initially lead to an attractive offer, you have the opportunity to go on hiatus. You can use the time spent in hiatus constructively to make your company more attractive to buyers.
There is another important lesson here too. Jonnaert notes that the sale of Clay AIR to Qualcomm rebuts the argument that young companies offering cutting-edge technology are not of interest to strategic buyers. According to Jonnaert, "This is an example of the sale of a fairly early stage company with an emerging technology that did not yet have broad market adoption, but one that generated a lot of interest from strategics. It counters the argument that companies like this often make that it’s way too early for them to go to market. We proved that argument wrong."