L1 for sale?

What's to become of one of the world's largest biometric manufacturers?
Thursday, March 4, 2010

STAMFORD, Conn.—Biometric giant L-1 Identity Solutions made its potential sale official March 2, when it announced that it has hired Goldman Sachs and Stone Key partners to explore its strategic alternatives.

Why sell now? Bob LaPenta, CEO and the largest single shareholder of the company, having invested $100 million of his own money, reiterated that he’s said all along that when 2010 arrived, the company would assess its position.

Asked if there were other reasons for exploring alternatives, Jay Beaghan, managing director for Imperial Capital said, “I think Bob’s being transparent in a good way. I think he’s telling The Street what he’s doing,” Beaghan said.

Being completely straight with shareholders is not always a CEO forte, but in this case, “he’s being straightforward,” Beaghan said, noting that LaPenta is “not an insignificant shareholder.”

Beaghan has in-depth knowledge of this market and L-1 in particular. A security technology banker for 20 years, Beaghan has a specialty in identity solutions investment banking; he advised on several of L-1's transactions as the company was put together through mergers and acquisitions of companies such as Viisage, Identix and Digimarc.

The potential sale of the company was first publicly talked about during a Jan. 6 investor call. Summarizing L-1’s strategic goals and objectives for 2010, LaPenta said the company wanted to “perform on programs in backlog, win new domestic and international program and explore strategic alternatives to enhance shareholder value.” 

Asked about whether a possible sale was “a board decision or a general statement” during the investor call, LaPenta said: “Those of you that are familiar with this company and the journey we’ve been on for the past three years are familiar with the fact that I always said that we wanted to build a great company and I really believe we’ve done that. I also said that as management, and that includes the Board, we have a responsibility to enhance and make sure that we’re providing value to our shareholders.”

LaPenta noted that when he began putting the company together through acquisition several years ago, “I said that when 2010 came that was a line I had drawn on the sand and 2010 is here. What that means exactly, I’ll leave to your interpretation, but I think it’s a self-explanatory statement.”

Final 2009 revenue for the company is expected to be $650 million, down from the previously anticipated range of $670-$680 million. Adjusted EBITDA is expected to be between $95 million and $97 million. L-1 expected to end 2009 with $1.3 billion backlog. It expects 2010 revenue to be $750 and $775 million and adjusted EBITDA to be $110 to $120 million.

LaPenta said the company is “highly regarded, that has franchises in a number of areas, credentialing, enrollment. We have a nice intel business and a very, very impressive biometrics business. I think our vision in putting this company together in this particular space was visionary. And I think it’s a valuable property.”

Noting that he’s invested $100 million of his own money, he added, “I don’t have any margins. And that investment does not include any options. It’s all my money. I worked hard with my team. I’m a big shareholder. And I expect that this company that we built should be valued appropriately.”

So who will buy?

“It’s textbook stuff,” said Beaghan. “A joint venture partner could come forward, an M&A partner could come forward, it could be a group,” he said.

There doesn’t seem to be any question in Beaghan’s mind that a buyer of some sort will emerge. “It’s an interesting business and it will be of interest to a number of people who come from different perspectives.”

Would the best way to enhance shareholder value be to spin off parts of the company or sell it as a whole? LaPenta refused to speculate when asked that question.