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Peter A. Sokoloff & Co. regularly analyzes transactions which occur within the industries covered. An archive of these case studies is kept online as a courtesy to our colleagues. To receive by e-mail new case studies as they are prepared, please e-mail [email protected] with your contact information.

Archives > Transaction Case Study 29

L-1 Identity Solutions to acquire Bioscript, Inc

Dear Colleague,

On January 7, 2008, L-1 Identity Solutions, Inc. (NYSE:ID), a provider of identity and biometric solutions, announced that it has entered into a definitive agreement with Canadian based Bioscrypt Inc (TSX:BYT), to acquire all outstanding shares in a stock-for-stock transaction.  At the time of the announcement the deal was valued at approximately US$44.4 million. 

With three quarters ending September 30, 2007, revenues for Bioscrypt in 2007 are estimated at US$18.0 million.  With cash of approximately $2.85 million, Bioscrypt’s Enterprise Value is about US$41.55.  This equates to 2.31x revenue.  Published reports indicate a negative EBITDA for the last 12 months. 

Under terms of the agreement, L-1 will buy Bioscrypt shares for 55 Canadian cents (55.5 U.S. cents) per share. This is 53% over the closing price of Bioscrypt on Friday, January 4, 2008, the last day of trading prior to announcement of the transaction, and a premium of 75% over the volume-weighted average trading price for the 20-day period prior to announcement of the transaction. 

The number of shares to be issued in payment by L-1 will be based on the average closing price of L-1 shares on the New York Stock Exchange for 20 consecutive trading days ending five days before the closing of the deal. Additionally, L-1 will assume outstanding Bioscrypt stock options not exercised at the close of the acquisition, which is expected in the first quarter of 2008.  

Thus far the market has reacted poorly to the announcement.  As of the close on January 9th L-1’s market capitalization decreased by some $116 million.  L-1 shares have traded down from $17.30 just prior to the announcement to $15.50, a drop of 10.4%.

The definitive agreement caps the number of shares that L-1 will issue for the transaction at 2.6 million.  At the current stock price of $15.50, the transaction’s actual value is currently US$40.3 million.  Based on Enterprise Value, the multiple of revenue is 2.08. 

L-1, together with its portfolio of companies, offers a set of products and solutions for protecting and securing personal identities and assets. Bioscrypt’s hardware and software solutions deliver authentication processes to facilities, equipment, IT networks and computer applications and allow organizations to administer unified identities across the enterprise.

“This transaction represents a strategic opportunity for Bioscrypt shareholders to maintain and develop their interest in the growing market for biometric technologies with an expanded market potential as a member company of L-1, a global leader in the identity management space”, said Robert M. Douglas, President and CEO of Bioscrypt.  “We see this as a ‘hand in glove’ business fit which, at the conclusion of this transaction, Bioscrypt’s technology will gain greater visibility and market traction to extend its global leadership in biometric physical and logical access control.   In addition, the transaction provides the shareholders of Bioscrypt with the enhanced visibility, investment opportunities, and market trading liquidity in the New York Stock Exchange, as L-1 Identity shareholders.” 

“With this acquisition, L-1 strengthens its leadership position in protecting and securing personal identities and assets by extending into access control, a market that is expected to grow substantially,” said Robert V. LaPenta, Chairman, President and CEO of L-1 Identity Solutions.  “In line with our strategy to acquire the best-in-class solutions, Bioscrypt is a leader in advanced physical and logical biometric access control solutions and brings new and unique technological capabilities to our portfolio of identity management solutions, including three-dimensional facial recognition.”   

The acquisition is structured as a plan of arrangement under the Canada Business Corporations Act and is expected to close in the first quarter of 2008.  The acquisition is subject to the satisfaction of a number of customary conditions, including approval by the holders of at least two-thirds of Bioscrypt’s outstanding common shares, options and warrants, each voting as a separate class, the approval of the Ontario Superior Court, and other regulatory approvals.  The definitive agreement also provides that L-1 will be paid a termination fee and reimbursed for expenses under certain circumstances in which the transaction is not consummated.   

Following the close of the transaction, it is expected that Bioscrypt will continue to operate from its current location(s).  Bioscrypt will become a wholly-owned subsidiary of L-1 Identity Solutions. 

We hope that you find this feature from Sokoloff & Co. interesting, informative and useful.  We welcome your comments and suggestions.

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