Burdened by debt and unhappy with how the investment community is valuing the company, L-1 Identity Solutions [ID] is expects to hire a financial advisor or advisors this month to help it explore its strategic alternatives, the company says.
Robert LaPenta, chairman, president and CEO of L-1, already said earlier this year that the company would begin looking at its strategic alternatives, reminding investors that one of the company’s goals is to provide value to its shareholders and that 2010 has always been looked at as a pivotal year for the company. Now he is providing additional color and insight about the process L-1 is undertaking.
One option that has already been eliminated is a “piecemeal” sale of a part or parts of the company, LaPenta says on the company’s fourth quarter earnings call. However, one option is to sell L-1 to an international firm, which would raise issues of foreign investment in the U.S., in particular the company’s government services business which provides expertise and support to the intelligence community.
LaPenta says that there would be a lot of interest in just L-1’s intelligence business.
LaPenta also says that an international buyer is an attractive option because it would provide L-1 with an expanded marketing force and “political clout” overseas where it is already generating revenues and sees its opportunities expanding, he says.
L-1 expects to make headway in its strategic review rather quickly, possibly within two months. The process is not going to “drag on,” LaPenta says.
“I should reiterate that we don’t have to do anything and I think that that’s an advantage to us because we’ve got a great company and we’ve got a great future,” LaPenta says. “We’ve all worked very hard to put this company together and it’s not something that we are going to auction at a bargain price.”
LaPenta says he has no plans to discount the company and “cashing my chips,” adding that he wouldn’t bother to hire a banker if he were going to sell the company at $7 or $8 per share or even between $10 and $11.
L-1 grew from the acquisition of the former identity solutions business Viisage in 2005, which was followed by a number of other acquisitions including biometrics solutions provider Identix in 2006. Once the deal for Identix concluded in Aug. 2006, L-1 began trading under its current stock ticker symbol “ID.” At that time the company’s stock was trading above $15 per share and peaked above $21 per share in May 2007. Since then the stock price has steadily declined, falling below $5 per share early in 2009 before rising slightly.
Following last week’s discussion by LaPenta, L-1’s stock is up over 10 percent, but still just over $8 per share.
“I think the fact that Wall Street doesn’t get it is just kind of reflective of the state that Wall Street and the rest of the world’s economic environment is in,” LaPenta says. “It’s a trading world. People don’t care about long-time quality and building value. They only care about what the next trade is and I think that’s a product of the buy and hold mentality and what made America great no longer exists on Wall Street. And I think we’ve seen that.”
However, LaPenta also says that L-1’s “debt structure is burdensome” and without a higher valuation from Wall Street that makes it harder to de-lever the company. L-1 expects to generate significant free cash flow in 2011 and 2012 which will go toward paying down its debt. Long-term debt stood at $419.3 million at the end of 2009, down about $10 million from 2008.