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Case Studies

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 #13

ASSA ABLOY’s HID acquiring Fargo Electronics Inc.

Dear Colleague,

On May 23, 2006, Fargo Electronics, Inc. (NASDAQ: FRGO) announced that its board had voted unanimously to enter into a definitive merger agreement to be acquired by ASSA ABLOY’S HID Global Corporation in exchange for an all-cash consideration of $25.50 per share. The acquisition price on a cash and debt free basis amounts to about $300 million. The transaction is expected to close at the end of the third quarter, subject to stockholder and regulatory approval. The offer is not subject to any financing contingency.

At $25.50, the transaction represents a premium of 57.12% over the pre-announcement share price of $16.23. About 23% of the company's outstanding shares traded hands on the day of the announcement. ASSA ABLOY AB’s share price (on foreign exchanges) moved up about 5.5% that day. The acquisition is expected to be slightly dilutive to EPS in 2006 and accretive to EPS in 2007.

Fargo’s TTM revenue is $82.48 million and its TTM EBITDA is $14.9 million. With an enterprise value of $300 million, ASSA ABLOY is paying 3.64x revenue and 20.13x EBITDA.

The acquisition is a result of a long-standing relationship between ASSA ABLOY subsidiary HID Corp. and Fargo, and their decision to jointly pursue opportunities in the secure identification field. Founded in 1974, Fargo is a global leader in the development of secure technologies for identity card issuance systems, including secure card printer/encoders, materials and software. The company has approximately 220 employees and has sold more than 120,000 systems in the U.S. and over 80 other countries worldwide. The company is expected to reach annual sales of more than $90 million in 2006 with a continued strong EBIT margin.

HID is a supplier and manufacturer in the access control industry, serving customers worldwide with proximity and contactless smart card technologies; central station managed access controllers; secure and custom card solutions; digital identity and photo card management software solutions; and electronic cylinders. Headquartered in Irvine, California, HID operates international offices that support more than 100 countries and is a member of ASSA ABLOY Global Technologies Division. ASSA ABLOY has some 30,000 employees and annual sales of about EUR 3 billion. Earlier this month, ASSA ABLOY Identification Technology (ITG) announced it had acquired Schwab & Partner Group, a leading European producer of contactless cards for the ski, public transportation and access control markets.

The acquisition of Fargo will enable HID to complement the centralized issuance of cards with a decentralized issuance in a controlled and seamless process. Fargo will also be able to build on HID's global marketing organization for further international expansion.

“We believe that we are now positioned as a leader in the rapidly growing market for secure issuance of corporate and national ID credentials. The combined organizations create the foundation to assure that materials are secure, that the process of issuing a credential is not subject to fraud, and that the resulting product is highly tamper-proof. “This acquisition complements our existing channel and product offerings, while broadening our capabilities in the rapidly growing secure card issuance category,” stated Denis Hébert, president and CEO of HID Global.

“We value the opportunity to partner with the organization that has created a position of innovation and leadership in card issuance and personalization,” said Joe Grillo, president and CEO of ASSA ABLOY’s Global Technologies Division.

“We’re looking forward to becoming part of HID,” said Gary Holland, president, CEO and chairman of the board of Fargo Electronics. "HID is well known in the electronic access control industry and is recognized as the trusted brand. With HID’s extensive resources and commitment in the electronic access control business, it will enable us to take our products and technologies to the next level.”

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

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