Safran to buy L-1 for $1.09b cash

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Thursday, September 23, 2010

PARIS—Biometric giant L-1 Identity Solutions, which announced in March it was for sale, has a buyer: Safran, based here, announced Sept. 20 that it would acquire L-1 and its biometric and enterprise access solutions, secure credentialing solutions and enrollment services business in a $1.09 billion cash deal.

L-1 is separately selling its intelligence services business to British defense contractor BAE Systems for $296 million. Both deals are subject to U.S. regulatory approval.

The businesses Safran is acquiring had 2009 revenues of $436 million and recorded a backlog of $1.1 billion at the end of 2009.

Following the closing, L-1 will become part of Morpho, Safran’s existing security business. “I think this looks like a good outcome,” said Jay Beaghan, Managing Director for Imperial Capital. “The valuation that L-1 and Bob LaPenta [L-1 CEO and the largest single shareholder in L-1, having invested $100 million into the company] achieved is attractive and meaningfully higher than where the company was at when the company announced its intention to explore such alternatives.”

While he was not involved in this transaction, Beaghan knows the Identity Solutions market well. He advised on several of the transactions that helped build L-1, including those involving Viisage, Identix and Digimarc. In addition, Beaghan worked on Safran’s 2009 acquisition of Printrak, a biometric business formerly owned by Motorola.

Safran indicated in a press release that the L-1 transaction builds on two 2009 transactions in the security sector in the U.S. Printrak, which was merged with Morpho’s U.S. biometrics activities to become MorphoTrak and the acquisition of GE’s Homeland Protection unit, now called MorphoDetection.

For many years, Safran has worked with Boeing, Lockheed Martin, eight of the largest U.S. airlines, the U.S. armed forces, TSA, FBI, and a number of state and local law enforcement agencies.

“The combined activities of Morpho and L-1 would have generated 2009 pro forma sales to U.S. customers of more than $700 million, with around 2,200 employees in the U.S.,” Safran reported.

Under the terms of the agreement, L-1 shareholders would receive $12 per share in cash, “an implied premium of 31.2 percent over L-1’s 30-day average closing price of $9.14 for the period ending Sept. 17, 2010,” according to Safran.

The estimated enterprise value of the L-1 businesses acquired by Safran is $1.19 billion, including L-1’s net debt at closing of $100 million. Due to operating synergies, the transaction is expected to be accretive to Safran’s earnings from year one.

“We are all highly impressed with the quality and expertise of L-1’s teams throughout the United States and we are looking forward to working with them to bring L-1 and Morpho together,” said Safran CEO Jean-Paul Herteman, in a prepared statement. “This will allow us to grow L-1’s business, while expanding the reach of L-1’s services to other key territories around the world.” 

Assuming the transaction goes through, Herteman expects Safran’s pro forma 2011 revenues from its security business, focused on detection, biometrics and identity management to exceed 15 percent of Safran’s global revenue, while organic growth should enable the group to “swiftly” achieve 20 percent of global revenue, he said.

In a prepared statement, Robert LaPenta said:  “Safran will provide a strong global reach and a more comprehensive portfolio of solutions and services in order to leverage the industry’s best set of collective experience and solutions, all to the benefit of our customers and partners worldwide.”