E Ink finds a buyer far from home

But the purchase agreement, unveiled yesterday morning, highlights how difficult it's become for innovative Bay State start-ups - even those, like E Ink, poised to capitalize on huge emerging market opportunities - to retain local ownership and headquarters at a time when the window for initial public offerings remains tightly shut.

E Ink makes the key technology used in display screens for Amazon.com's popular Kindle and other electronic readers, a market expected to grow rapidly. Prior to the economic downturn, a company sitting on such a hot technology would have been likely to consider an IPO, selling its stock to the public for the first time, to raise the money to fund future growth; but the market for such offerings has dried up.

"This is a company that, five years ago, would have been embraced by the public market," said E Ink board member Ken Mabbs, managing partner at FA Technology Ventures in Boston, the largest investor of venture capital in the 12-year-old Cambridge company.

In the absence of an IPO market, E Ink turned to a deep-pocketed partner, PVI, which trades on the Taiwan Stock Exchange and has access to global capital markets, to bankroll its expansion. The deal is subject to approval by shareholders of both companies, and depends on PVI completing its financing arrangements. Under the acquisition plan, E Ink would become a wholly owned subsidiary of PVI, retain its local management and employees, and help PVI refocus on the electronic paper market. DisplaySearch, a market research firm based in Austin, Texas, has estimated that market will be more than $3 billion a year by 2013.

PVI, currently E Ink's largest customer, uses electronic ink - tiny capsules of positively charged white particles and negatively charged black particles - in the low-power, high-contrast displays for e-readers. In the past, much of the Taiwanese company's business was centered on liquid crystal displays for cellphones, global positioning satellite modules in cars, and other electronic devices.

"They've been at it for years, they feel the growth, and they've decided to focus their company on electronic paper," said Russ Wilcox, chief executive of E Ink. "With their resources, we're going to be able to accelerate our research and development and expand capacity more quickly. Everything is staying here in Boston, but we have to have a global business because customers are all around the world."

E Ink, which now has about 120 employees at its Cambridge headquarters and another five at a recently opened coating and film production plant in South Hadley, will expand in both places, Wilcox said. "We're hiring as quickly as we can," he said. "We're looking for people who understand math and algorithms, we're looking for chemical scientists, electrical engineers, and product managers."

Scott Liu, chief executive of PVI, spoke with E Ink employees from Taiwan on a teleconference yesterday. "The people in both companies will unite to provide the world's best digital reading experience," Liu said in a statement issued by his company. In comments to the Taiwanese media, Liu said he "highly valued the talent" of E Ink employees and cited the company's strong patent portfolio, said Tien-haw Peng, director of strategic planning for PVI.

While voracious book readers and early adopters of new technologies make up much of today's market for e-readers, the market is likely to expand in coming years as textbooks, newspapers, and other content migrates to the platform, and as color technology is introduced for the Kindle, the Sony e-reader, and low-cost competitors, according to a report released last week by Forrester Research of Cambridge. The technology research firm predicted the number of e-readers in the global marketplace will grow from about 1 million in 2009 to 5 million in 2012 and 14 million in 2013.

"This market is about to take off, and the acquisition of E Ink will allow PVI to occupy more of the value chain," said Sarah Rotman Epps, media analyst at Forrester. "This is certainly not a bad thing for Massachusetts. E Ink will now be able to ramp up capacity in a way they wouldn't have been able to do independently."

E Ink was founded in 1997 by Wilcox and four partners, including Joseph Jacobson of the Massachusetts Institute of Technology's Media Lab, using MIT technology. It has raised more than $150 million in capital from venture firms and strategic investors such as Hearst Corp., Intel Corp., and Motorola Inc.

Those backers were clamoring for an "exit," a way to recoup their investments, just as the economic downturn made it impossible for high-tech start-ups to go public and build companies with more than $1 billion in annual sales - a measure used by economic development officials to describe anchor companies in a region.

Over the past year, other high-potential Massachusetts technology and biotechnology start-ups - from Maven Networks and Virtual Iron to Millennium Pharmaceuticals and Sirtris Pharmaceuticals - have similarly been sold to out-of-state or foreign buyers.

Henry W. Newman, general partner at Solstice Capital in Boston, another E Ink venture financial backer, applauded the alliance with PVI as a good outcome for the Cambridge company.

"As a practical matter, the IPO market doesn't exist," he said. "This was the best strategy for the company and the investors."

Robert Weisman can be reached at weisman@globe.com.