Microsoft Said to Be in Talks to Buy N-trig

Sources say company valued at less than $10 million.

Microsoft

N-trig, an Israeli provider of digital pens and chips for touch screens, is in talks to sell itself to Microsoft after it failed in an effort to go public on the Tel Aviv Stock Exchange, TheMarker has learned.

Although the financial news site Calcalist reported yesterday that the company would be sold for at least $200 million, sources said the price would likely be less than $10 million. That would mark a significant loss for N-trig’s investors, who have put $130 million into the company since it was started in 2003.

Microsoft, which already has a 6% stake in the company and is its most important customer, signed a deal last year to integrate N-trig’s pen in its Surface Pro 3 tablets.

Other investors include the Israeli venture capital funds Evergreen Venutre Partners, Canaan Partners, Morris Kahn’s Aurum Ventures and Chaim “Poju” Zabludowicz’s Tamares Fund.

Microsoft declined to comment on the report, saying it doesn’t respond to rumors.

After failing to go public on Wall Street, N-trig attempted a $20 million initial public offering on the TASE last year at a valuation of $75 million to $80 million. But the IPO was pulled in November due to the company’s poor finances – its auditors attached a “going concern” warning to its financial reports – and its overreliance on a single customer, Microsoft.

Customers for N-trig’s technology also include Sony, Fujitsu, Hewlett-Packard and Lenovo, which use N-trig technology in smartphones, tablets and ultrabooks.

N-trig said that in the first half of last year it had negative cash flow of $4.4 million from operations and at the end of last June had just $5 million in cash on its books, with shareholders’ equity of just $12 million. Against that, it has $12.5 million of debt

N-trig had revenue of $36.7 million in 2013, up 38% from 2012. Revenue totaled $20.6 million in the first half of 2014, when it sold 1.3 million digital pens, more than three times the amount it sold in the same period of 2013.

If the acquisition goes through, most of N-trig’s 190 staff will move to a Microsoft Israel research and development center, the Calcalist said.