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M&A activity may increase following OAT, Impinj deals

8/18/08 | John R. Johnson | email w

The dog days of summer might be upon us, but that’s not the case in the bustlisng RFID sector. Checkpoint Systems’ June acquisition of OATSystems and Impinj’s deal to purchase Intel’s RFID operations have ignited the industry.

Industry analysts are undecided if those two deals are a harbinger of things to come for the industry. However, executives close to the OAT deal say that four companies pursued OAT, and that two more got into the sweepstakes for the middleware provider too late in the game. That means there may be a few unfulfilled bidders that are likely still in the hunt to acquire established RFID software and middleware firms. The biggest loser right now appears to be ADT/Sensormatic, which was rumored to be in the hunt for OAT.

"I don’t think we’ve seen the end of this wave,"says Louis Bianchin, senior analyst and program manager for research firm Venture Development Corp. "I suspect that in the EPC-UHF market, in the chip, tags and reader segments, there are still definitely too many players. That market is headed toward more consolidation. And the middleware space still has quite a few players, so I expect that some of them will be absorbed."

The question is when. Jonathan Collins, principal RFID analyst with ABI Research, believes that while more consolidation is bound to occur, the pace won’t be accelerated simply because of this summer’s M&A action. However, the other companies interested in OAT already appear to have answered the "build vs. buy"question and are now looking to buy.

"These deals seem to have their own rationale rather than being a broad indicator of what’s happing in the market,"says Collins. "I don’t believe these alone indicate that the rush is on."

Either way, the merger activity should prove beneficial for the industry, including customers using RFID technology. For starters, consolidation serves to strengthen customer’s overall confidence in the RFID sector. In addition, as consolidation occurs among vendors, it often becomes easier for customers to make decisions on which firms to work with. As large companies like Checkpoint, HP, and Zebra build complete solutions for existing clients to leverage, it is clear that their competitors will look for technology to bolt on to existing offerings. Look for competitors like ADT/Tyco to make a move by the end of the year on one of the handful of companies that have proven solutions in the market – InSync Software, GlobeRanger, ShipCom, or ODIN.

The two recent deals also make each participant stronger. OAT now has much bigger global presence due to its parent company, while Checkpoint Systems can now add a software solution for its retail customers who use its Electronic Article Surveillance (EAS) system for reducing shrinkage and theft. Since Checkpoint’s focus is on retail, some industry experts question whether OAT will remain active in the manufacturing sector, where it has gained traction of late, especially with a big deal it signed with aircraft maker Airbus.

Impinj, meanwhile, reinforced its spot as an industry leader by acquiring the award-winning R1000 reader chip from Intel. The acquisition adds a highly integrated reader radio chip to the Impinj family of UHF Gen 2 RFID products. Initial talks between Intel and Impinj began 12 months ago and heating up during the first quarter.

While Checkpoint paid all cash for OAT in a deal that is believed to be worth around $37 million, plus another $7-8 million in retention bonuses, the Impinj deal was a stock only transaction. And while Intel has officially exited the RFID business, the fact that the company was willing to do an all stock deal signals that Intel is a firm believer in the technology’s future.

"They are out of RFID in a direct way in terms of product development but they still have a vested interest in seeing the RFID marketplace succeed,"says Impinj CEO Bill Colleran, who notes it will take a few more months to integrate the acquisition. "We’ll look to collaborate with them on various things in the future."

The Intel R1000 has been re-branded by Impinj as the Indy R1000 reader chip. Intel will continue to fulfill orders for the chip until the end of September, when that function will roll over to Impinj. The company acquired several of Intel’s RFID personnel as part of the deal.

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