Gemalto could consider entry of financial sponsor to fend off potential hostile takeover - advisers
- Any process unlikely ahead of new strategic plan in 1Q18
- Advent/Oberthur potential bid would be unwelcome
- Gemalto may be considered 'strategic' by French government
Gemalto [AMS:GTO], the Amsterdam-based digital security company, could fend off a potential hostile takeover from a strategic player through the entry of a financial sponsor that would support the current management, according to sector advisers.
In July, shares in the group, which is listed in Paris and Amsterdam, dropped 20% following its fourth profit warning since October last year due to a double digit decline of its US Payment and SIM Businesses.
Gemalto’s battles have left it vulnerable to takeover approaches from peers including Advent-owned French smart card maker Oberthur, the bankers and a lawyer familiar with the company said.
To protect itself from any hostile approaches, Gemalto and its management could sell a minority stake to a tech-oriented private equity fund or a long term institutional investor such as a Canadian pension fund, the first banker said. Such an investor would require a willingness to invest in the company’s future strategy without changing its internal structure, this banker said.
Any potential sale process is unlikely before 2018, a second banker said. Gemalto needs to sort out management changes and build a business case that shows a private equity firm can create value from it first, he added.
In another scenario, Gemalto could consider a bid from a consortia of two or three large private equity funds due to its challenges, the second banker said. Such private equity players would be based in the UK, US or France and could include Cinven, Carlyle, Apollo, KKR, and Ardian.
Blackstone could also table a bid for the asset, as reported by this news service. Any private equity would require reassurance on the lifespan of some of Gemalto’s core business, such as contact payment cards, the same report noted.
A deal with Oberthur is being explored by bankers, a third banker familiar with Gemalto said. Synergies would come from cost reduction and R&D unit combinations, he added.
Yet such a deal would face regulatory hurdles as both players operate in the same market, several of the bankers said. Gemalto is the number one player for smart cards followed by Oberthur as number two, the second banker noted. However, since the arrival of Asian competitors into the market, regulators could take a more relaxed view of local consolidation, the third banker said.
Gemalto would also balk at accepting a takeover offer from Oberthur, a lawyer, a person briefed on the situation, the first and third bankers said. Gemalto fought hard to buy Safran’s [EPA:SAF] Identity and Security subsidiary Morpholast year, and losing out to Oberthur was very painful, a fourth banker said.
Gemalto and Advent-sponsored Oberthur were frontrunners for Morpho, which was eventually acquired for a EUR 2.4bn by Advent last year, as reported. Gemalto would also have concerns about job losses and management changes in a sale to Oberthur, the bankers agreed.
Gemalto is in the process of reviewing options, the person briefed noted, ruling out any possibility of a sale to a peer.
In July, shares in the group, which is listed in Paris and Amsterdam, dropped 20% following its fourth profit warning since October last year due to a double digit decline of its US Payment and SIM Businesses.
Gemalto’s battles have left it vulnerable to takeover approaches from peers including Advent-owned French smart card maker Oberthur, the bankers and a lawyer familiar with the company said.
To protect itself from any hostile approaches, Gemalto and its management could sell a minority stake to a tech-oriented private equity fund or a long term institutional investor such as a Canadian pension fund, the first banker said. Such an investor would require a willingness to invest in the company’s future strategy without changing its internal structure, this banker said.
Any potential sale process is unlikely before 2018, a second banker said. Gemalto needs to sort out management changes and build a business case that shows a private equity firm can create value from it first, he added.
In another scenario, Gemalto could consider a bid from a consortia of two or three large private equity funds due to its challenges, the second banker said. Such private equity players would be based in the UK, US or France and could include Cinven, Carlyle, Apollo, KKR, and Ardian.
Blackstone could also table a bid for the asset, as reported by this news service. Any private equity would require reassurance on the lifespan of some of Gemalto’s core business, such as contact payment cards, the same report noted.
A deal with Oberthur is being explored by bankers, a third banker familiar with Gemalto said. Synergies would come from cost reduction and R&D unit combinations, he added.
Yet such a deal would face regulatory hurdles as both players operate in the same market, several of the bankers said. Gemalto is the number one player for smart cards followed by Oberthur as number two, the second banker noted. However, since the arrival of Asian competitors into the market, regulators could take a more relaxed view of local consolidation, the third banker said.
Gemalto would also balk at accepting a takeover offer from Oberthur, a lawyer, a person briefed on the situation, the first and third bankers said. Gemalto fought hard to buy Safran’s [EPA:SAF] Identity and Security subsidiary Morpholast year, and losing out to Oberthur was very painful, a fourth banker said.
Gemalto and Advent-sponsored Oberthur were frontrunners for Morpho, which was eventually acquired for a EUR 2.4bn by Advent last year, as reported. Gemalto would also have concerns about job losses and management changes in a sale to Oberthur, the bankers agreed.
Gemalto is in the process of reviewing options, the person briefed noted, ruling out any possibility of a sale to a peer.
A three-year strategic plan, including details of its M&A strategy, such as expansion in the US, was expected to be announced in 4Q17, but this has been postponed to 1Q18 due to deteriorating results from its US Payment and removable SIM card businesses, the person briefed said.
Scrutiny by the French government could also make a trade sale more complicated, the first banker and the lawyer agreed. Gemalto, which makes software for mobiles, bank cards and passports, is a strategic asset for the French State, they suggested.
The French state holds more than 8% stake through French state-controlled investment bank Bpifrance. But, a deal may not be a concern to the French government as Gemalto has operations around the world, the second banker argued.
In 1H17, Gemalto posted revenues of EUR 1.4bn (8% lower vs 1H16), with gross profit s lower by EUR 84m at EUR 502m. The reduction in gross profit for the Payment, SIM and related services was partially offset by the increase from the other businesses, according to a company report.
Gemalto declined to comment.
Scrutiny by the French government could also make a trade sale more complicated, the first banker and the lawyer agreed. Gemalto, which makes software for mobiles, bank cards and passports, is a strategic asset for the French State, they suggested.
The French state holds more than 8% stake through French state-controlled investment bank Bpifrance. But, a deal may not be a concern to the French government as Gemalto has operations around the world, the second banker argued.
In 1H17, Gemalto posted revenues of EUR 1.4bn (8% lower vs 1H16), with gross profit s lower by EUR 84m at EUR 502m. The reduction in gross profit for the Payment, SIM and related services was partially offset by the increase from the other businesses, according to a company report.
Gemalto declined to comment.