Biometric industry becomes increasingly consolidated

As the biometrics market continues to expand, larger firms have begun to acquire smaller companies that are developing cutting edge technology. Analysts believe that the industry will become increasingly consolidated in the next three to five years.

“We think the identity space and biometrics is going to be very large and growing fairly robustly over the next three to five years as government entities in particular look to secure their borders through the means of biometrics,” said Joel Fishbein, an analyst with Lazard Capital Markets.

Several key biometrics firms were recently acquired in major deals. L-1 Identity Solutions was acquired by Safran, Cogent Systems was bought by 3M, and ActivIdentity announced that it would become a part of Assa Abloy.

Dilip Sarangan, a biometrics industry analyst for Frost & Sullivan, believes that these were wise decisions on the part of both the companies being acquired and the purchasers.

“I see this happening with a lot of the smaller organizations. They have some good technology, but they don’t have the reach a Safran or a 3M would. So it is an opportunity for a larger organization to come in and take the technology, improve it and create a better market for biometrics,” Sarangan said.

The largest acquisition was the French aerospace and defense systems firm Safran’s purchase of L-1 Identity systems, which was announced last September for $1.6 billion.

Safran will integrate L-1’s technology into its subsidiary, Morpho, a large provider of biometric and secure ID solutions, to increase the French firm’s reach in the United States.

According to Sarangan, “Morpho produces a lot of technologies that L-1 does, but L-1 has a bigger reach in the U.S. market. So it gives (Safran) an opportunity to get more brand recognition in the U.S.”

The acquisition comes as part of Safran’s aggressive foray into U.S. markets. In 2009, Safran acquired 81 percent of General Electric’s homeland security portfolio dramatically expanding its reach.

The L-1 merger also provides Safran with an opportunity to get into the technology side as well.

“It helps them in building more comprehensive and integrated solutions (adding) biometrics into other security technologies,” Sarangan says.

Prior to the L-1 and Safran merger, 3M announced last August that it would purchase Cogent Systems for $943 million.

So far the deal has been held up by lawsuits as Cogent shareholders believe they accepted far too low an offer. Industry analysts agree with this assessment.

Fishbein of Lazard Capital said, “I think they did their shareholders a disservice by selling out at such a low price. They took a low-ball offer, in our opinion.”

Despite the low offer and the law suit, Fishbein still believes that the acquisition would still benefit Cogent.

“[Cogent] should be better under 3M’s reign because 3M has a lot more marketing muscle and a lot more scale from a company perspective,” he says.

The deal would also provide 3M with new technologies like Cogent’s finger, palm, face, and iris biometric systems which it currently sells to governments, law enforcement agencies, and businesses.

These new technologies would supplement 3M’s existing ID management business which includes document readers and document manufacturing systems for IDs, passports, and visas.

In a statement, Mike Delkoski, vice president and general manager, 3M Security Systems Division, said, “Adding Cogent Systems’ products to our business strengthens our product portfolio and services in high security credential issuance and authentication systems and positions 3M’s business in law enforcement applications,”

“It also expands our reach into access control and other commercial ID and authentication applications,” he added.

In a merger filled with collaborative potential, Assa Abloy, HID Global’s parent company, acquired ActivIdentity for $162 million in October.

Assa Abloy of Sweden is the world’s largest manufacturer of locks and access control equipment, while HID Global is the largest provider of proximity and contactless access control cards and card readers. Incorporating ActivIdentity’s biometric capabilities would greatly enhance their capabilities to provide secure entry and identification solutions.

Additionally, this offers the company an opportunity to begin creating converging systems.

Frederick Ziegel, an analyst with Blue Water Capital Markets, explains, “The idea that has started to surface is how can you converge those so that at the end of the day, you would have one credential that would permit you access to a building and to your networks. It would substantially cut down on support costs.”

The Department of Defense (DOD) and other federal agencies are actively seeking to deploy these convergent security platforms.

“The DOD by far has the biggest deployment of smart cards, which coincidentally happen to have been supplied to them by ActivIdentity,” Ziegel said. “So their whole idea is to have a single credential enable some DOD personnel to be able to go from building to building and from network to network without having to worry about carrying around a pocket full of credentials or a pocket full of passwords. There’s an enormous cost savings to all of that.”