PeHub via Reuters is reporting that Lockheed Martin has a couple of pieces of the couple on the auction block, including its Enterprise Integration business, which could fetch as much as $1 billion.
EIG, which provides systems engineering and integration services, has attracted interest from several private equity firms including: Kohlberg Kravis Roberts and General Atlantic; Cerberus Capital Management; and Carlyle Group, the sources said.
So, does Lockheed just not like the systems integration business right now? Hard up for cash? Hardly.
The Pentagon drafted rules last year to remove potential organizational conflicts of interest within government contractors.
That has forced many defense companies including Lockheed Martin and Northrop Grumman to divest units that offer advisory services to government agencies on platforms that they end up bidding for.
Northrop Grumman cited the same issue when it sold its TASC Inc advisory services business for $1.65 billion to KKR and General Atlantic in November.
Much of this is certainly defense-oriented, but it would be interesting to have another large private equity player in the security marketplace, as they may indeed look to delver further into commercial marketplaces to grow the business.
Good article from Lou Whiteman at theDeal.com today looking at whether 3M is likely to have competition for buying Cogent.
It seems that investors are actually paying more right now for Cogent stock than 3M is actually offering, meaning they’d lose money if the 3M deal went through. That’s some interesting Wall Street gambling.
Where’s the thought coming from?
The deal values Cogent at about 8.5 times 2010 expected Ebitda and 7.1 times 2011 estimates. Raymond James & Associates Inc. analyst Brian Gesuale notes that Cogent rival L-1 Identity Solutions Inc. (NYSE:ID), which put itself on the block earlier this year and could announce a deal in the coming days, is trading at 11 times its expected 2011 Ebitda, leading Gesuale to believe that either L-1 is overpriced or that the 3M offer undervalues Cogent.
Could be the former, though, right? L-1’s stock price is at least somewhat inflated by the idea that it’s for sale.
“At first blush, 3M’s offer appears light given the range of public takeout multiples in the government technology space this year at 9-14x forward EV/Ebitda,” Gesuale wrote in a note to investors. “The firm’s proprietary technology, leadership status in a growing [automated fingerprint identification] industry with high barriers to entry, and recent list of wins leads us to believe a higher acceptable takeout price is warranted.”
I guess that makes sense, but isn’t it also true that DHS represents a huge portion of Cogent’s business and that they’re not going to go on buying fingerprint readers forever?
So, who are these potential suitors?
The article mentions L-3 Communications Holdings Inc., Northrop Grumman Corp., SAIC Inc., and Honeywell. Not sure why they didn’t just throw Boeing and Lockheed in there, since they’re basically just listing big companies that work with the government and could afford Cogent. I would be kind of shocked if Honeywell went in that direction, since Cogent professes in its SEC statements that just about all of its business is in government and law enforcement, and Honeywell doesn’t play there all that much, but maybe they’d see it as a way to get further into the government market.
I certainly wouldn’t mind a little bidding war. It would make things more interesting, anyway.
P.s.: Just noticed that 3M is gobbling up other companies, too. PeHub has 3M buying a people-monitoring firm from Israel, Attenti Holdings, as well, for $230 million. I guess when you’re sitting on $5 billion in cash, you can do some shopping.
3M announced this morning an agreement to by Cogent, a maker of biometrics products, for $943 million (the press release says when you back out what Cogent has in cash, it’s really only a $430 million outlay, but I’m only seeing $272 million in cash and investments on the most recent 10k, so I’m not sure where that number is coming from).
Cogent does “finger, palm, face and iris biometric systems for governments, law enforcement agencies, and commercial enterprises,” though I’ll admit I haven’t seen them much at the shows or through press releases. Don’t know much about them. Maybe that “commercial enterprises” thing is wishful thinking. In the Cogent SEC filings, they say, “We market our solutions primarily to U.S. and foreign government agencies and law enforcement agencies.”
I don’t think many of you readers are installing Cogent products.
As for 3M, usually they call me to talk about the security film that they put on monitor screens that makes it so someone else can’t peek at what you’re working on on the plane - not exactly an integrator’s dream product to carry. However, they do have a significant security business (find their most recent 10k here), doing lots of ID stuff to the tune of about $3 billion a year, and they’ve got $3 billion in cash, so they can throw it around a bit.
Also, they pay a $1 a share in dividends. Not too shabby!
Cogent looks like a pretty healthy company, except that all of its numbers are going the wrong way. Sure, they cleared $7.7 million in net income on $49.8 million in revenues for the first six months of 2010, for a tidy 15.5 percent net margin (good!), but those revenues are down from $62.8 million in the same period last year (bad!).
Net profit is down 55 percent (yikes!). Gross profit is down 37 percent (still kind of yikes).
Despite that 3M is still paying about 15 percent of a premium to buy up the shares. And that seems like quite a lot considering Cogent did, indeed, do $130 million in 2009, but isn’t exactly on pace for that in 2010. Is 3M really paying almost a billion dollars (sort of) for a company that might not do $100 million in revenue in 2010?
3M could be looking at the fact that while product revenues have dropped significantly for Cogent, maintenance and service revenues are actually up. That might tell them the business is growing and that government orders of biometric products are bound to be lumpy.
Cogent got 54 percent of its business from one customer in 2009, with that same customer contributing just 25 percent of revenue in 2010.
And that customer is DHS:
The most significant portion of our revenues in the most recent three fiscal years has been derived from sales to the DHS. The DHS uses our solutions in connection with the implementation of the United States Visitor and Immigrant Status Indicator Technology, or US-VISIT, program. We anticipate that the DHS will account for a significant portion of our revenues for the foreseeable future. We do not have any long-term contracts with any of our customers, including the DHS, for the sale of our products, and our future sales will depend upon the receipt of new orders. Any delay or other change in the rollout of US-VISIT or any failure to obtain new orders from the DHS could cause our revenues to fall short of our expectations.
If you look closely at the filing, too, you can see Northrup will be buying at least $5 million in products a year for the next four years, so there’s another little base, anyway.
Service revenue doesn’t exactly lead to better margins for manufacturers, though. The gross margin dropped from 62.8 percent in 2009 to 49.8 percent in 2010, though that could just be attributable to revenues dropping but overhead not moving much. Something led to them burning through $40 million in cash over the past 12 months.
Was 3M also looking at L-1? What does this do to L-1’s valuation?
People have been sending this story from Good Morning America, about a guy who watched his home get burglarized on his iPhone, all around the Internets. And, I guess, if you’re not in the industry it does seem kind of cool.
Wowzer! You can watch video on your iPhone?!?
Considering I can uStream with my iPhone and people can watch whatever I’m doing live on their computers and there’s face-to-face now, etc., I’m not sure why this is so impressive, but there’s a good human interest story, what with the pumping gas aspect and the great story of the robbers trying to throw the brick through the window.
But what should be actually worrisome for the industry is how casually the security industry is completely ignored on the second page once the GMA technology expert person is called in.
Becky Worley walks you through the steps of setting up this iCam app, then finishes with:
The program lets you stream video and audio from up to four computer webcams at the same.
The downside to this system is that it uses computer webcams, which makes it difficult to use the computer for other purposes.
How many people are rocking four computers in their house? Maybe lots nowadays, but I’d say that’s a pretty significant downside. In our house, you’d get a great visual of the bookcase in front of where my computer is, but you could rob 95 percent of my house blind without the webcam noticing anything. I suppose you could reposition it as you leave the house… Still, not exactly overly practical.
I think there’s something that GMA is not telling us about the “elaborate” security system that this guy is using to monitor his home.
But Becky does offer us another option:
Another option, which will free up all of the computers in your home, is the Dropcam Wi-Fi security camera.
For about $200 and a $10 monthly fee, all you need is Wi-Fi to monitor your house from anywhere in the world, using your computer or mobile device.
Motions trigger alerts, which are sent to you via text or e-mail. Then you can watch the video from your phone. The interface is dead simple and takes only five minutes to setup.
How about, oh, I don’t know, Total Connect? Or any of a dozen other residential video solutions that are now available via iPhone app? Nope, not a mention. It’s taken as OBVIOUS that you would just set this up yourself and monitor it yourself. There’s no hint that you’d maybe want a security company involved.
Do I think that most people would currently choose the DIY route over monitored security systems? No. But I do think that this idea is creeping ever steadily into the mainstream, and the fact that an event like this garners so much publicity, but so little attention for the security industry, which has been offering this capability for years, should be seriously concerning.
When the mainstream thinks about security, they think about ADT and Broadview (still) and scary white men in black hoodies that trip your alarm so that charming young men can call your house. But if you want to monitor your home with video on your iPhone. Oh, just buy a web cam for that.
Yep, the Inc. 500 list is out again, tracking the fastest-growing small companies and drawing attention to little guys that may never be heard from again.
Same basic story this year: Not a whole lot of physical security firms on the list, which can be for a number of reasons. Sure, it could be because not many security firms have grown very fast. But it could also be that security firms tend to be conservative in nature and not spread their private revenue numbers far and wide. Or it could be that they just weren’t/aren’t paying attention to Inc.
It strikes me that most security guys are SECURITY guys, and not your average businessmen. Most security guys I know don’t give a rat’s ass about Wall Street and the “business world.”
But I’m sure landing on the Inc. 500 feels pretty good, and you likely get some calls from venture and PE guys sniffing around for an investment opportunity. Exacq are definitely psyched about landing on the list this year, chiming in at #173. Or maybe they’re just psyched about growing 1,642 percent over three years, going from basically nowhere to $9.7 million last year.
From their blog:
Thanks again to all of the employees at Exacq, to our sales channel, and especially to our customers. This is quite an honor.
So, anyone else we know on the list? This year they’ve broken “security” out as a category, so it’s a little easier to search, but it’s still a little murky.
LifeLock is listed as “security,” but I don’t think anyone would consider them part of the security industry. (I’m also truly baffled that they put up $131.4 million in revenue last year. Their scare-based advertisements work, apparently.)
In fact, one would think security was dominating the list, when you see Ciphent at #16, Foreground Security at #18, and NetWitness at #21. Only the ambiguous “Government Services” sector (which for some reason I just find kind of de facto sleazy) has as much representation in the top 21.
But, of course, those are all data security companies.
Then you’ve got to go all the way down to #116 for Anakam, which does identity management, which has some bleed over into physical security, and will start to bleed over a lot more, in my opinion, but which still is not “physical security,” by any stretch.
In fact, Exacq, at #173, is top dog in physical security. Good for Exacq, certainly, but does it give anyone in the industry pause that there’s no one ahead of them? With the hot video surveillance, and hosted video, and even the many new offerings in home security (DIY and otherwise), there’s no hot new security company near the top of this list?
Again, could just be a lack of participation, but these kinds of lists can be good for attracting capital and talent, so it would behoove the industry to participate just a little.
For instance, Reveal (#224) grew fast enough to get snapped up by SAIC.
The first integrator, Security By Design, checks in at #313, and this should definitely be good exposure for them.
From their profile:
Security By Design provides security and fire alarm services, including project consultation, system design, installation, construction and project management, national maintenance services, software, hardware, technical support, and systems integration.
I’m certainly going to give them a call.
I thought Vigilant, at #341 was a VMS company, but they’re not. Hmm. They call themselves security monitoring, but they monitor data security, which is clearly different than how we use that terminology.
At #479 is online security product retailer Brickhouse Security, who’ve done a nice job marketing themselves, even if they’re a bit low-brow. $12.3 million is pretty good business, but I don’t think many of you guys are competing with them for nanny-cam sales.
Here’s what they list for products: “from locks, cameras, and baby monitors to tracking devices, night vision goggles, stun guns, and spy gear.”
And that’s it for the top 500. I’m not going through the whole 5000, but you’re welcome to. Feel free to point out companies I should be paying attention to.
Again, is it a big deal that security isn’t well represented? No. But would it be nice if security were? Yeah, I think so.
So, Apple Insider and a number of Mac blogs are all hot and bothered that an IDC report on Apple’s sales figures has them increasing government sales by 200 percent.
Agreed, that’s a big number. Still, 200 percent of not very much is still not very much.
Similarly, people are noting that Apple’s growth in the education market is slower than the overall PC market. Which, of course, is because Apple already has a huge share in education, so it’s harder to grow there.
Still, the news of the government growth is possibly significant. I had a small piece about VideoNEXT and Siemens selling onto Apple servers with the government last October, so I can’t say I’m overly surprised by the news. My piece deals with anecdotal evidence, admittedly, but the number of VMS/DRV providers that have made a point of telling me their stuff works on Macs and with iPhones, etcs., has grown substantially in the past two years, and large IT distributors like TechData have made commitments to Apple and security, so there is supporting anecdotal evidence that says it’s not crazy to think Apple is making significant inroads into markets that have traditionally been Windows-based.
What does Apple think about the government and security marketplaces? I have no idea. Every interview request I’ve thrown their way (and there have been half a dozen or so) has either been completely ignored or completely rebuffed. I tried talking to them at this forum back at ASIS in 2008, but was told to go pound sand.
Looking at the page view numbers, not many of you care much what happens with L-1, but Reuters is out with a story that the company will be sold shortly.
BANGALORE, Aug 19 (Reuters) - Biometric identity systems maker L-1 Identity Solutions Inc (ID.N) said it received several offers and was close to finalizing a deal, months after it put itself up for sale.
L-1 said it would announce a deal, which analysts said could be around the $1 billion mark, in the coming weeks.
I’m unclear as to why the dateline on that story is Bangalore, by the way.
Martha wrote about the company’s prospects back in March. At the time, LaPenta wouldn’t speculate on whether the company would be broken up as part of a sale, but that seems the most likely result to me.
Sure, they’ve built an interesting company with all of these acquisitions, but it doesn’t seem overly healthy to me. Here are the key statistics from Yahoo. Which part of that picture looks good to you?
The $470 million in debt, against only $645 in annual revenues? The negative profit margin?
Clearly, the economy hasn’t helped ease the combination of all of those biometric companies into one force to be reckoned with, but it’s certainly not obvious that the whole is greater than the sum of its parts, either.
Also, looking at the numbers, it’s pretty clear why none of you cares about what happens to this company. Just $11 million of its $312 million in 2010 revenues so far have been done in the commercial sector. This company sells to the feds and the states and not many others.
Many of you may have read this post of mine from the other day regarding Frost & Sullivan’s mention of Niscayah in a press release.
Now that certain information has been delivered to me, I must apologize to Frost & Sullivan for what I wrote. It was irresponsible of me to jump to erroneous conclusions about a quid pro quo relationship with Niscayah that does not exist. It was wrong of me to question the integrity of the report’s author. Especially, being a reporter who knows better, I should have at least called and asked the question before being so judgmental and mean-spirited.
I am a bad person. This is not the first time my badness has come to light. I’m sure it won’t be the last time.
Further, I probably shouldn’t have been so snarky in my analysis of the press release as a whole. I haven’t read the entire report, and I was being funny at Frost & Sullivan’s expense, really for no good reason. I was being a dick, which sometimes happens. Good for Frost & Sullivan for calling me on it.
I apologize, too, to my readers. I’ve abused your trust in me to discover and write the truth, by giving you bad information. I wish I hadn’t done that.
For those interested, below is the correspondence which drew my attention to my bad-personness. For the record, Matia is clearly a nicer and more forgiving person than me:
Mr. Pfeifle,
I just went through your blog related to the Press Release on Retail and
it’s clear that you do not rate Frost & Sullivan highly. I’m not looking to
change your view overnight but stress that the work we have delivered to
Tier 1 players in Europe this year has been very well received including
the Retail project.
We are disappointed that you have attacked a press release that only
reports headline figures rather than understanding what the report
contains. If you had contacted us we would have discussed the results with
you in more detail and still welcome you to do so. We will be delighted to
share some of the more detailed results in the report for you to share with
your readership.
In addition to the above I must stress that we have received no payment
from Niscayah for reporting this Press Release. The Niscayah contract win
in the Netherlands earlier this year happened to coincide with the
completion of the retail project and supported conclusions from the
project. We contacted Niscayah and asked whether they would like to be
featured in the article and they agreed.
You make other comments that we will openly debate with you and provide
hard facts from the research to support our position.
We look forward to discussing your blog and views in more detail.
Regards
Matia
Here’s my response to that:
Hi Matia,
You write, “In addition to the above I must stress that we have received no
payment from Niscayah for reporting this Press Release.”
Is it “no payment for reporting this press release” or that they are not a
client of yours at all?
If they are not a client of yours at all, I will of course retract my
statements and issue an apology. Their inclusion in the release just seemed odd and strangely placed, so that I leaped to what may very well have been an erroneous conclusion, which of course would be irresponsible of me.
That was the central reason for my posting. If you want to debate the finer
points of other pieces, I’m happy to, but I think they’re largely irrelevant to why I was writing about the release. If Niscayah had not been mentioned, I would have just passed it by. We don’t much cover the European marketplace.
If you’ll clarify your business relationship with Nicayah, I’ll either retract or not, based on your reply, and the rest can be dealt with in the comments section, if you so choose.
Cheers,
Sam
Really, I’m still being a jerk there. I should have been a little more contrite, in retrospect.
And, finally, Matia’s last reply, which pretty much closes the deal on me being wrong about the press release and my blog being a dick move:
Hi Samuel,
Obviously we have done work in the past with Niscayah as we have done work with virtually all the Tier 1 players in the market but I don’t get paid to mention a specific company or product in my press releases. I consider myself as a serious professional and I would like to be treated as such.
Mentioning them here was only a reflection of the new focus the company is putting on verticals outside of banking in Europe. Mentioning historical players like ADT or Diebold or Chubb or Nedap or the other historically strong players in the retail market would not have made much sense in this specific press release. I would have been more than happy to mention other players such as Thales or EADS or Elsag or whoever if they had come up with any recent announcement.
On the point of ” they’re largely irrelevant to why I was writing about the release” that is not what comes across in the blog. 80% of it is taking apart a 200 word press release based on 100 pages and several months of project work. I do not feel this is a fair representation of the hard work that my team put into this and if you had got in touch with Frost (or me directly) I would have been more than happy to give you more insight and more hard data on why some of the conclusions we put in the PR and also why I mentioned Niscayah directly.
We need to have impartiality in the market to remain credible with our clients in Europe and your assertion that we’re taking money to plug companies is wrong. You’ve also left an impression that the report is wrong (again based on a 200 words article) and as a result ask you to remove the blog which could be very damaging to our reputation in Europe. Many security organisations are Global.
I’d also like to again extend the invite to talk about the report in more detail and/or also how we can have a more collaborative relationship in the future with me and my team here in Europe.
Matia
Yes, I’m as shocked as you are that she offered an olive branch at the end there. Like I said, better person than me.
So, why did I jump to such an erroneous conclusion?
Well, in my experience, it’s just not often that a research firm releases notice of a report and chooses to only highlight one company in the press release. Further, this is how Frost & Sullivan describes itself in press releases, etc.:
Frost & Sullivan, the Growth Partnership Company, enables clients to accelerate growth and achieve best in class positions in growth, innovation and leadership. The company’s Growth Partnership Service provides the CEO and the CEO’s Growth Team with disciplined research and best practice models to drive the generation, evaluation and implementation of powerful growth strategies. Frost & Sullivan leverages over 45 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from more than 35 offices on six continents. To join our Growth Partnership, please visit http://www.frost.com.
They don’t tout themselves as a research firm, but as a “growth partnership” firm. Thus, I assumed, incorrectly, that they were “partnered” here with Niscayah, and that was the reason they were mentioned and no other integrator was. Again, I was wrong, and for that I apologize.
Can’t say sorry enough, really, but I’m not going to take down the offending post (I’ve altered it to make it clear it’s erroneous, at the top), since I think it’s instructive to watch a self-absorbed asshole journalist like myself self-implode in a fiery ball of wrongness. Also, there’s an interesting discussion in the comments field.
When people in the mainstream media worry about the dangers of blogging, this is what they’re worried about.
To continue the discussion of what information you can trust and from whom, I’ve recently received a number of emails wondering about my opinions on various other research groups.
Here, I’ll address IMS, just because I seem to have as much of the full story as you can get.
So, after reading my blog about Frost & Sullivan, a reader emailed me:
Frost & Sullivan - Is their business strategy being copied by other “prestigious” market research companies?
Just read your interesting piece on Frost & Sullivan and thought you may be interested to read the link below.
In the ‘Software-only Vendors of Open Platform Network Video Management Software (VMS)’ category, See Tec was ranked number 2 in the EMEA region and is rapidly closing in on the number 1 position. In the rankings for all open platform VMS vendors, including players also offering hardware, See Tec was ranked number 3. The report also clearly foresees a macro-shift in favour of hardware independent open platform based VMS in the period between 2009 and 2014. Furthermore, IMS Research expects proprietary VMS solutions to decline significantly in the same period.
The implied question: Is IMS doing studies to determine market rankings, then selling the ability for a company to tout that ranking?
So, I asked that question of Alastair Hayfield, who heads up their video practice at IMS:
Me: “Hey, I’ve seen a couple releases like this one lately:
That’s just them touting their ranking on their own, right? You don’t charge them for the privilege or anything, do you?”
Alastair: “Yep, that’s pretty much it. If a vendor/manufacturer wants to promote their market position from the report that’s fine with us and there’s no cost. We even have a press release code that they have to adhere to.
The rankings are also always based on annual calendar revenues from vendors (i.e. sales of product in 2009). Another thing to bear in mind is that we don’t include maintenance, service or integration/consulting revenues in our equipment reports (i.e. World CCTV 2010). Just equipment or, in the case of the above, sales of VMS.”
Thought that was an interesting back and forth and worth sharing.
