Putting a clear focus on its commercial aviation and defense businesses, France’s Safran Group says it plans to divest its operations that provide explosives detection systems for airports and review options for its identity solutions portfolio.
Philippe Petitcolin, Safran’s CEO, says at the company’s Capital Markets Day that discussions are ongoing with “some industrial companies” that are interested in buying the Morpho Detection business. He says the detection business has better growth opportunities outside of Safran.
The company says it expects to have an agreement to sell Morpho Detection in the coming weeks.
Reuters last October reported that Safran was exploring a sale of Morpho Detection after it received an unsolicited offer from an “industrial player.” The news agency also reported then that Safran had retained global investment bank Goldman Sachs to provide financial advisory services on a potential sale of the business. Safran declined to comment to HSR on who is providing it with financial advice related to the disposal of Morpho Detection.
Safran’s detection business, which operates as Morpho Detection, was acquired from General Electric [GE] in two phases beginning in 2009 with the majority of the business purchased then and the remainder in 2012 for a total of $698 million. Morpho Detection has two main product lines, explosives trace detection and automated explosives detection systems.
Safran has sold its trace products to the Transportation Security Administration (TSA) in the U.S., the U.S. military, and airports worldwide. In 2015 Safran sold more than 900 explosives trace detection systems to airports in Europe.
The TSA and airports worldwide also operate a large installed base of Safran’s explosives detection systems (EDS), which quickly and automatically scan checked bags for explosives.
GE in 2007 tried to form a joint venture with the Smiths Detection business of Britain’s Smiths Group with their respective security screening businesses but that deal fell through the same year. Smiths Detection would have owned a 64 percent stake in the joint venture.
As for the rest of Safran’s Security segment, which provides a range of biometric capture and identity matching products and services, Petitcolin says the review of strategic options runs the full gamut of possibilities including retaining, selling or partnering. He also says the review has just begun and its results should be known by the end of this year.
Safran in 2011 acquired a portion of its identity solutions business from the former L-1 Identity Solutions for $1.1 billion. The company already had an extensive global identity solutions business, particularly in the area of biometric matching software systems for civil, law enforcement, and national identification and the deal with L-1 significantly expanded its presence in the U.S, particularly with the Defense Department, and for enrollment and credentialing services for the federal government, states and localities.
Safran Group’s MorphoTrust unit currently provides third party biometric enrollment services to TSA for its PreCheck trusted traveler program and for a separate hazardous materials truck driver licensing program.
Petitcolin says the physical market around identity solutions is “well secure” but that the transformation to a “digital market is not.” He adds that “to move into this direction would be a large investment for Safran, and a more risky investment than what we are used to.”
Moreover, Petitcolin says, a significant problem with Safran’s Security segment vis-a-vis the rest of the company is that the workforce can’t be shifted around as needs arise. He says that this might be “the most important thing for me, I am not in a position to transfer talent from Aerospace Defense to Security and vice versa. These guys don’t have the same expertise, don’t speak the same language even when we talk about new electronic systems, new software. So it is very, very difficult to move the talents between Security and the rest of the businesses of Safran.”
Petitcolin says the current state and outlook for the Security segment is positive. The company provided briefing slides as part of its presentation showing that operating margins in the segment are currently approaching 10 percent and are poised to cross 10 percent in the 2017 to 2018 period.
Security sales in 2015 were $2.1 billion, up nearly 23 percent from 2014 with 11 percent of the growth organic, according to Safran’s annual results issued in February. The company attributed the increase to gains in both its detection and identity businesses. Operating income was $168 million with operating margins of 8 percent.