Dec 22, 2011Dutch RFID transponder company Smartrac N.V. has acquired UPM RFID, a division of Finnish wood pulp, paper and timber provider UPM-Kymmene Corp., and plans to leverage the passive ultrahigh-frequency (UHF) technology company's manufacturing capabilities to position itself as one of the world's largest providers of UHF RFID inlays. The acquisition of UPM RFID follows Smartrac's purchase of two other companies within the past two weeks: Neology, on Dec. 8, and KSW Microtec, on Dec. 14. The three acquisitions represent Smartrac's interest in further penetrating the UHF RFID market by providing tags, as well as the inlays built into those transponders, and full RFID solutions.
With the UPM RFID deal, says Tanja Moehler, Smartrac's head of corporate communications, the company "will be able to seize the full potential of the market." UPM RFID is among the largest global providers of RFID inlays. Once the sale takes place, UPM-Kymmene will become an indirect shareholder of Smartrac, holding a 10.6 percent interest. The sale is expected to close sometime during the first quarter of 2012.
Historically, Smartrac has focused on providing high-frequency (HF) and low-frequency (LF) RFID inlays, including those used in passports and contactless credit cards, as well as for access control. More recently, the company has begun providing UHF tags, including the Smartcrate tag—a ruggedized UHF tag for tracking reusable crates and bins within harsh environments. With an interest in furthering its presence in the UHF market, Moehler says, Smartrac has not only offered its own UHF products, but has also sought opportunities for acquisitions that would enable it to access additional UHF manufacturing capabilities.
With its latest acquisition of UPM RFID, Smartrac will be "one of the top five suppliers of passive UHF components based on revenues," according to George Kraev, a senior analyst of security and identification at ABI Research. Michael J. Liard, the director of RFID at analyst firm VDC Research, estimates that UPM RFID alone has more than 40 percent of the UHF RFID inlay market, competing with inlay providers like Avery Dennison and Alien Technology. However, Smartrac is now poised to provide not only the LF, HF and UHF inlays, but also the LF, HF or UHF passive RFID tags in which those inlays are embedded, for such applications as access control, public transportation, automotive and animal identification. "It would seem that Smartrac is making itself stronger by being more self-sufficient," Kraev says, by offering full RFID solutions utilizing its own UHF inlays.
Worldwide demand for passive UHF RFID inlays has increased with the growing use of EPC Gen 2 tags at the item level within the retail sector. By acquiring UPM RFID, Smartrac will need not compete with the company for customers employing UHF inlays for item-level tagging, as well as for other UHF applications. In addition to UHF inlays, UPM also provides HF tags.
Neology manufactures customized RFID transponders, and also provides UHF RFID solutions focused on the electronic vehicle registration and electronic toll-collection markets. Smartrac acquired the company for $30 million, and purchased KSW Microtec, based in Dresden, Germany, for €24 million ($31.3 million). KSW Microtec produces and sells HF and UHF RFID inlays, as well as prelaminates and components for RFID tags used with sensors, and for border-crossing cards in Europe. Due to the merger, Smartrac gains not only KSW's product portfolio, but also its customers in Germany and its manufacturing facility in Reichshof-Wehnrath.
These acquisitions afford Smartrac greater manufacturing capability, the company reports, though how that will be managed has yet to be determined. On the day of the announcement (Dec. 22), Kraev says, the value of Smartrac stock, which is listed on the Frankfurt Stock Exchange (Prime Standard), closed down, dropping by 0.88 percent, on a day when the majority of European stocks closed up—which could indicate some concern regarding how the company will integrate its new acquisitions. Initially, Liard predicts the coexistence of UPM RFID's inlay manufacturing and Smartrac's manufacturing of its own transponders.
Other questions remain with regard to the integrated circuit providers for Smartrac, Kraev says, noting that UPM RFID currently uses chips from NXP Semiconductors and Impinj, while Neology utilizes Alien Technology chips.
For customers and partners in the UHF market, Liard says, the consolidation of the companies' technologies could mean a drop in tag pricing. "We've been watching for these kinds of consolidations in the industry," he states, adding that as technology demand grows, vendor acquisitions are common, frequently leading to portfolio consolidations such as that of Smartrac and UPM RFID, which can now manufacture UHF and HF inlays, as well as RFID transponders, for a variety of applications. "Now it seems to actually be happening." The next acquisitions to take place within the RFID industry, Liard projects, will likely involve companies that provide RFID-based software solutions.
