Navitas Systems, a small Illinois battery firm with big dreams, was the ideal company Chinese-owned Wanxiang needed to seal the deal to acquire U.S.-backed battery technology owned by A123.
In a pre-emptive move to ward off political opposition, Wanxiang Group eschewed U.S. government and military contracts owned by A123 in its $256 million bid for the company in December. And separately, Woodridge-based Navitas offered $2.2 million for the most controversial portions of A123’s business.
Both sales closed Tuesday night after approval by the highly secretive Committee on Foreign Investment in the United States. Splitting off the military contracts to Navitas mitigated mounting concerns about U.S. technology falling into foreign hands.
“I don’t want to say we’re a savior on the government side, but that’s kind of our role,” said Alan ElShafei, Navitas’ founder and chief operating officer. “There are some unique technologies we’re acquiring that Wanxiang will not have access to.”
Those technologies include new chemistries for battery packs used by U.S. soldiers that offer twice the power of traditional batteries at the same weight. The batteries are noteworthy for being fireproof, even when penetrated by bullets, and they can hold up under extreme heat or cold, he said.
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In the deal, Navitas also acquired A123’s Ann Arbor, Mich., facilities and the brainpower of scientists who work in the labyrinthine world of Department of Defense contracting.
In what ElShafei called “the most complicated acquisition case in all of America,” the deal was carefully structured to protect national security interests.
Both Wanxiang and Navitas have access to the same basic underlying battery chemistry, originally developed and licensed by the University of Texas to A123 and others more than a decade ago. The difference lies in how that battery chemistry is used, packaged and manufactured. Wanxiang uses the technology for electric vehicle batteries; Navitas for government and military applications.
In a one-way licensing agreement, improvements on that technology by Wanxiang can be licensed to Navitas, said Thomas Golab, Navitas vice president and chief financial officer.
Navitas expects its new business to pump $10 million into the company by year’s end. It’s a major step forward for the small company.
The Navitas Systems name didn’t exist until just a few days before December’s auction of A123 assets. The company had been an operating segment of battery manufacturer MicroSun Technologies, founded in 2003 by ElShafei. MicroSun sold all but two of its operating segments to Palladium Energy, then based in Lisle, and rebranded the portions of its business that deal with large format, high-power systems and electronic circuitry with the name Navitas.
“I love creating companies from scratch, creating jobs,” said ElShafei.
With Tuesday’s deal, he’s added 40 A123 employees in Ann Arbor and Livonia, Mich., (which includes the engineering staff that worked on the auto and government contracting sides of A123) and expects by year-end he’ll have 100 to 150 employees at Ann Arbor and Woodridge.
A123’s former Ann Arbor facility, ElShafei said, will be renamed Navitas Advanced Solutions Group.
Lazard, which ran the auction for A123, contacted Navitas as a potential bidder for A123’s assets, said ElShafei. In a matter of weeks, they found themselves at Willis Tower in a bidding process that stretched over multiple 20-hour days.
“I felt like a kid in a toy store with all the chemistries and technologies,” said ElShafei, adding that they structured their bids to complement those of either Wanxiang or Johnson Controls, the stalking-horse bidder from Milwaukee.
ElShafei said his company and Wanxiang, along with an army of lawyers, spent the past month and a half ensuring that a wall exists between the two companies. For example, Wanxiang, doesn’t have access to the Ann Arbor facility, its information technology platforms or its scientists.
“My humble opinion is that, yes, we were very important to the deal, but our intention going into it was mainly to protect the national security interests in terms of this technology. I’ve been in this business 25 years and I’d like to see this technology stay in the United States,” ElShafei said.
ElShafei’s wife of 29 years is the CEO of Navitas Systems. The two met in college at the University of Illinois at Chicago. ElShafei, 50, also has an MBA from Benedictine University.
For his part, Pin Ni, president of Wanxiang America, based in Elgin, said the company’s offer was altered not to include military contracts out of political concerns.
“The reality is, this technology was never a national security issue,” Ni said.
The opposition, as he sees it, was always political. A123 was a global company, said Ni, with manufacturing facilities in China and the U.S. Wanxiang, Ni noted, already holds U.S. military contracts other than those it would have acquired with A123.
“Between USA and China there’s always going to be conflict. Let’s be realistic,” said Ni. “But these two economies are melded together so tight that you have the same body. If you want to cut, you can cut, but it’s going to hurt both sides. The best thing to do is to try to work out a deal, work together.”
Groups that opposed A123 military contracts from being acquired by a Chinese firm included the Strategic Materials Advisory Council, a coalition of former U.S. government and industry leaders concerned about U.S. access to materials critical to military operations and the economy.
“We don’t want to wake up one day to the corporate equivalent of a Pearl Harbor and find out that we no longer control any part of our supply chain,” said Dean Popps, co-chair of the council and a former executive in charge of procurement for the U.S. Army.
Popps said the U.S. government is failing to develop and implement policies that prevent U.S. technology from going to foreign competitors. The problem, he said, is larger than Wanxiang.
“Nobody is stepping back and connecting the last 50 sales and saying, ‘What are we giving up here?’ Who is in charge of assessing that and coming up with a strategy? Is this going to be our policy?”
He said the emergence of Navitas was an easy way for government leaders to say, ‘We checked that box.'”
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