L-1 Identity to buy Canadian biometric vendor

Canadian biometric access control provider Bioscrypt Inc. announced Monday that it has signed an agreement to be acquired by Stamford, Conn..-based L-1 Identity Solutions Inc. in a stock-for-stock transaction worth about $44 million.

Under the definitive agreement, L-1 plans to buy the Markham, Ont.-based Bioscrypt for 55 cents a share; which stands at a 53 per cent premium over last Friday’s closing price. Rob Douglas, Bioscrypt’s chief executive officer, sees the deal as a positive one for his company and feels its expertise in the biometrics space led L-1 to make the purchase.

Before acquiring Bioscrypt’s shares, L-1 still needs approval from two-thirds of Bioscrypt’s shareholders and the Ontario Superior Court.

“This is going to take Bioscrypt to the next level and at a very deep level I believe in this initiative,” Douglas said. “We looked at our strategic options and all the choices we could have made, but by far, this is the best one to serve all our shareholders, employees, partners and customers. We wish to accelerate profitable growth and this provides a key building block to achieving that.”

As for any changes at Bioscrypt, Douglas did not rule out the possibility of some job cuts resulting out of the merger.

“Any refinements we make in the business model we would do anyway, because we’re seeking to accelerate profitable growth and we’re currently not profitable,” Douglas said. “We’ve built a plan on how to refine our business model out into the future and my belief and expectation is that L-1 will continue with those refinements.”

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Talk to the hand

On the other side of the exchange, L-1 said the need for automated access control for biometric technology – which describes the use of biological properties, such as fingerprints, retina scans, voice recognition, to identify individuals – was a key contributor to the deal.

“Bioscrypt has established itself as a worldwide leader by creating access control software and hardware solutions that are biometrically enabled,” Joseph Atick, executive vice-president and chief strategic officer for L-1, said. “For us, it completes elements to our end-to-end solution. We already have divisions that issue physical credentials and capture the biometric, but we still needed to give customers the ability to utilize those credentials in the physical access space.”

According to James Quin, senior research analyst at London, Ont.-based Info-Tech Research Group, the move was not surprising, considering the rampant activity in the security space lately.

“The security market in general has been going through a tremendous amount of consolidation over the last 12 to 24 months and we really don’t see that slackening off at all in the next little while,” Quin said. “Traditionally, it’s been quite a fractured market with the bigger companies sitting pat on commodity solutions – letting the little guys really develop specialization capabilities and niche markets – and then later snapping those smaller companies up. So, this is really just a continuing trend that has been established in the market.”

And while Quin said that it’s a positive move for any company to grow its portfolio in an established area, he feels the biometrics space still has a way to go in before it becomes the growth area companies like L-1 would like it to be. Despite this, he sees L-1 coming out ahead in the deal when it’s all said and done.

“It’s likely to be a successful move because the price tag wasn’t huge in the grand scheme of things and really has no cash out of pocket because of the stock swap,” Quin said. “Because of this they don’t need a huge measure of success right away and they can allow the market to grow a little bit more organically. It certainly has them well positioned by adding the full range of capabilities and functionality that Bioscrypt can bring them.”

Following the close of the transaction, Bioscrypt will continue to operate out of its Markham, Ont. location and be run as a separate division of L-1. The deal will be presented to Bioscrypt shareholders for approval at a special meeting scheduled next month.