Augmented Reality startup explores a sale

Magic Leap Inc., the startup that raised more than $2 billion to build an augmented-reality device, is exploring options including a sale, according to people familiar with the matter.

The Plantation, the Florida-based company is working with an adviser to consider strategic options that could also include forming a partnership or selling a significant stake ahead of a potential listing, said the people. Magic Leap could fetch more than $10 billion if it pursues a sale, the people said, asking not to be identified because the information is private.

Tech companies have been placing bets on the promise of augmented-reality products, which have also found uses in health care and other industries.

The entire hardware sector is facing new threats, from tariffs in the U.S.-China trade war to supply chain shortages, after factories closed with the coronavirus outbreak. The pressures are resetting expectations at major companies such as Apple Inc., and may hit even more acutely at private startups that rely on outside investors to keep their operations going.

Magic Leap, which counts Alphabet Inc.’s Google and Alibaba Group Holding Ltd. among its largest investors, is gauging potential interest from large tech companies including Facebook Inc. and medical giant Johnson & Johnson, the people said.

An initial meeting between Facebook and Magic Leap never progressed to deal talks, according to a person familiar with the matter. The social media giant, already facing rising tariffs and coronavirus-related production pressures for its own virtual reality headsets, isn’t currently interested in acquiring Magic Leap’s business, the person said.
In addition to Facebook, Microsoft Corp. and Amazon.com Inc. have all been investing in augmented reality with their own divisions, said Jitendra Waral, a Bloomberg Intelligence senior analyst. AR hardware may be limited to enterprise uses for the next several years, he said.

For Magic Leap, the valuation of the company will be a question mark because suitors may have to take a long-term bet without substantial near-term revenue, Waral said. The scalability of the company’s technology could also be an issue, he added.

“One thing to keep in mind with AR hardware is we do anticipate mainstream adoption being a few years away, so whoever buys them needs to have the financial capacity to carry the products through as AR is still evolving,” he said.

Magic Leap’s deliberations, which may not lead to a transaction, come as the company shifts its focus to selling its products to companies in the health-care, industrial and financial sectors after slower-than-expected adoption by consumers.

Representatives for Magic Leap, Facebook and J&J declined to comment.

Punchy private valuations for buzzy startups don’t always translate into successful public listings. Two of the most prominent debuts last year -- Uber Technologies Inc. and Lyft Inc. -- are still trading well below their initial public offering prices. Meanwhile, the spectacular collapse of WeWork reads like a cautionary tale for money-losing unicorns headed for public markets.

There have also been signs of discord within Magic Leap. The company has faced legal disputes with m