Austin, Texas-based Motion Computing, a longtime player in the semi-rugged tablet space that served the healthcare industry among others, has been acquired by rugged tablet PC maker Xplore, also based in Austin. Earlier this month Xplore bought Motion's assets for $9 million cash, plus the assumption of $7 million in net liabilities, after Square 1 Bank foreclosed on most of Motion's assets.

“The acquisition of Motion is consistent with our goal to establish the best and broadest line of rugged tablets for the enterprise market,” Philip Sassower, chairman and CEO of Xplore, said in a statement. “Motion represents a unique opportunity for Xplore to acquire an Austin-based company with deep industry domain expertise and that possesses products and channels complementary to our own. Together we will address a broader range of customer needs and provide a ‘one-stop shop’ for rugged tablets.”

The fact that both companies are Austin-based provides for a smooth transition, Sassower explained on a recent call with investors. In addition, the two companies offer similar products but with key differences. While Xplore has traditionally focused on fully ruggedized tablets for industries like energy, military operations, manufacturing, distribution, public services, public safety and government, Motion's focus is on semi-rugged tablets for field service, healthcare, utilities, construction, retail, public safety and first responders. So the acquisition effectively brings Xplore into the healthcare space. 

In addition, while only about 20 percent of Xplore's revenue comes from outside the United States, 46 percent of Motion's did, so Xplore sees much of the value of the acquisition in Motion's international distribution channels, which Xplore can now use to sell both Motion's products and its own.

"We believe that once we’ve had the chance to properly integrate the Motion business, this acquisition has the potential to transform Xplore into a much larger, more stable, and higher growth enterprise," Mark Holleran, president and COO of Xplore, said on the call. "We must, however, caution everyone that the integration poses a number of significant challenges. Despite it’s profit and revenue-generating success, Motion has not been a profitable business. In our opinion, an expansion plan that included major redressed products for all three product lines as well as non-core investments, placed the company in an over-leveraged position with little margin for error. When faced with the same screen issues recently encountered by Xplore, Motion had no room to maneuver, and as a result its senior secured lender is foreclosing on virtually all the Motion assets."

The screen issue Holleran mentioned may have been the straw that broke Motion Computing's back: After three years of declining revenues (the company peaked over 100 million in 2012), Hydis, the Korean company that manufactured the screens for Motion's tablets suddenly and unexpectedly went under, dealing a major blow to a company that was already stretched thin.

Sassower and Holleran spent much of the call assuring investors that Motion wasn't going to be a money pit for its new owners, though they did admit they will be taking a hit for the first few years of combining the two companies.

"It’s sort of like buying a house in a $5 million neighborhood in Greenwich, Connecticut for three quarters of a million dollars," Sassower said. "I may have to spend half a million dollars to fix it up, but when I’m finished I’m going to have a $5 million house. So in our minds we create a reserve, and we say, 'that’s part of the purchase price.'"

Xplore will cut some of Motion's upfront costs by eliminating subordinated debt and payroll redundancies, though the company hopes to minimize layoffs at both companies, Sassower said.

"There’s no doubt that you’re taking on a company that last year did $80 million in revenue and lost $7 million," he added. "But we’ve identified millions of dollars worth of costs that won’t be there virtually on day one."

It's unclear how much the changes in the healthcare market were contributing to Motion's financial woes. The company was a regular presence on the HIMSS show floor along with rugged tablet competitors like Panasonic and Dell, but in recent years a renewed enterprise focus from Apple and Microsoft has put pressure on those companies.

"Half of the sales cycle [used to be] convincing [healthcare stakeholders] they needed a tablet,” Kyle Sale, Director of Product Marketing at Motion, told MobiHealthNews during an interview at HIMSS 2013. “And the iPad came along and broke down that barrier for us, but it began to present a challenge. People use their iPads at home and think, 'This is really cool. I’d like to use this at work.'”