When Biometrics firms collide: $44m consolidation deal
STAMFORD, Conn.Ã¢â‚¬â€L-1 Identity Solutions, a rapidly growing company in the biometrics space, in early January came to definitive agreement with Bioscrypt, the market leader in physical access control biometrics, to purchase the company for roughly $44 million. In an all-stock transaction, L-1 will pay the equivalent of $.55 per Bioscrypt share, based on the average closing price of L-1 stock for the 20 trading days leading up to the dealÃ¢â‚¬â„¢s close. The purchase price represents a more than 55 percent premium on the $.36 per share trading price of Bioscrpyt on the day before the dealÃ¢â‚¬â„¢s announcement. The close is subject to regulatory approval.
Doni Fordyce, L-1Ã¢â‚¬â„¢s executive vice president, corporate communications, said Bioscrypt, which will operate as a wholly-owned subsidiary, fills one of the few holes in L-1Ã¢â‚¬â„¢s biometric portfolio: physical access control. Ã¢â‚¬Å“We have tremendous capabilities in capturing the biometrics and using software to access and manage databasesÃ¢â‚¬Â on the logical access side, she said, Ã¢â‚¬Å“but we donÃ¢â‚¬â„¢t have anything in physical access right now. The hardware and software they use is just not an area weÃ¢â‚¬â„¢re in ... It opens a tremendous new market for us.Ã¢â‚¬Â
In some ways, this was by design, said Joseph Atick, L-1Ã¢â‚¬â„¢s executive vice president and chief strategic officer, who came to L-1 through its acquisition of Identix, which he built as chief executive officer. While running Identix, he said, Ã¢â‚¬Å“I made a conscious decision to get out of [the physical access market] because I felt I couldnÃ¢â‚¬â„¢t compete against Bioscrypt at that time. So thereÃ¢â‚¬â„¢s a clean complementarity because we focused more on knowledge discovery and biometric enrollment, a complementary space to BioscryptÃ¢â‚¬â„¢s. There isnÃ¢â‚¬â„¢t any overlap and now we bring together the best of breed in both areas. I donÃ¢â‚¬â„¢t regret the decision of having focused Identix into a complementary area.Ã¢â‚¬Â
Atick isnÃ¢â‚¬â„¢t concerned, either, with BioscrpytÃ¢â‚¬â„¢s recent financial performance. The company brought in $5.2 million in revenues for the quarter ending Sept. 31, 2007, while recording a net loss of more than $10 million over the first nine months of the year, despite its market-leading status. Both Atick and Bioscrpyt chief executive officer Robert Douglas said this deal should alleviate any fears that dealer partners may have had about BioscryptÃ¢â‚¬â„¢s long-term viability.
Ã¢â‚¬Å“The access control market is about trust and reliabilty,Ã¢â‚¬Â Atick said. Ã¢â‚¬Å“You want to know that the company behind a product is able to sustain itself in that marketplace. Having the L-1 brand behind Bioscrypt takes the issue of survivability off the table, and nobodyÃ¢â‚¬â„¢s going to be fired for investing in a Bioscrypt solution ... Now, not only is this a good product, but this is a very good company that will stand behind you.Ã¢â‚¬Â
Atick said applying BioscryptÃ¢â‚¬â„¢s technology to other areas of L-1 will allow the company to diversify and will make the deal revenue neutral for L-1 in 2008, despite BioscryptÃ¢â‚¬â„¢s recent losses. Ã¢â‚¬Å“When they are unable to diversify,Ã¢â‚¬Â he said, Ã¢â‚¬Å“they face a problem and the challenge is that they spend 30 percent of their revenue on R&D, so weÃ¢â‚¬â„¢ll be able to leverage some of the talent that Bioscrypt has into other L-1 divisions, which takes the burden off Bioscrypt.Ã¢â‚¬Â
Ã¢â‚¬Å“WeÃ¢â‚¬â„¢re a market leader in the physical access control segment,Ã¢â‚¬Â said Douglas, Ã¢â‚¬Å“and logical access control is going well, as well, but you need to be a profitable business to stick around in the long term.Ã¢â‚¬Â
Is L-1 profitable? In the recent past, yes. The company has posted EBITDA of $44 million over the last 12 reported months, but posted a net loss of about $6 million, about $.09 per share. However, L-1 reported a $1.5 million net income for the three months prior to Sept. 30, 2007. L-1 also carries about $275 million in debt, with roughly $11 million in cash.
An interesting side-note to the deal are former A4Vision stockholders. When they received Bioscrypt stock as part of a $9 million acquisition in early 2007, it was trading at $.98. Down to $.36, the value they received had been cut by nearly two-thirds. Now, theyÃ¢â‚¬â„¢ve realized just a 45-percent loss of value in getting $.55 a share, but they will be owners of far fewer shares of L-1 stock, which traded at roughly $17 on the day of the announcement.