Jul 07, 2008This article was originally published by RFID Update.
July 7, 2008—Two weeks ago Checkpoint Systems, a leading provider of electronic article surveillance (EAS) and related anti-theft solutions to retailers, announced that it would acquire OATSystems, a pioneer in the middleware category that evolved into a provider of application- and vertical-specific RFID software (see Checkpoint Buys OAT to Become One-Stop RFID Shop). Not announced in the original release, the $37 million acquisition price was subsequently published in a Checkpoint filing. In the two weeks since the deal was announced, there has been a flurry of commentary about what it means for the players involved and the RFID industry at large. Today and tomorrow we recap in a two-part series the best of that commentary.
A Good Move for Checkpoint
Checkpoint's stated motivation for the move was two-fold: one, to bolster its virtually non-existent RFID software offerings and in so doing become a "one-stop shop" for retail RFID solutions, and two, to broaden its value proposition to retailers beyond just EAS to include the whole range of retail supply chain benefits that RFID promises. There was a consensus among analysts that this appears to be a sound strategy.
"Checkpoint sees market opportunity for itself in two different dimensions: helping retailers lose less and sell more. The OATSystems acquisition contributes to both. While electronic article surveillance is perceived to be an effective loss prevention tool, it has little effect on employee theft prevention, which some estimate to be as high as $13B a year for U.S. retailers alone," wrote John Fontanella of AMR Research in his brief about the acquisition. "But the RFID assets acquired by Checkpoint can help solve this problem by tracking merchandise from the receiving dock, to the back room, and finally to the store shelf. The acquisition also brings with it intellectual property and domain experience for real-time promotions execution, fresh item management, and out-of-stock tracking for retailers to grow their same-store sales."
Mike Liard, research director of RFID & contactless for ABI Research, noted, "Checkpoint intends to immediately utilize OAT capabilities to ... to take its customers through the transition from the current generation of EAS technology to the broad use of RFID. As a result, Checkpoint expects the transaction to be accretive as soon as next year." He continued, "With a broadening view of RFID within manufacturing through the supply chain to the retail floor, ABI Research believes the Checkpoint RFID story, which has largely been an in-store one, is now becoming more of an enterprise story. That is a compelling reason to make the move on OAT."
Reik Read, the RFID industry financial analyst with Baird and author of RFID Monthly, pointed out how becoming part of a much larger company could help OAT more easily sell prospective clients who would otherwise be wary of working with a startup. "A big balance sheet and big income statement give end users a lot more confidence that the technology provider will be around in a few years."
OAT's Non-retail Accounts
Because Checkpoint is squarely focused on the retail sector, some wonder what will become of OAT's non-retail accounts. OAT's non-retail business has actually grown in importance as the company diversified out of retail and supply chain and into industrial and manufacturing. While Per Levin, president of Checkpoint's shrink management division, told RFID Update that OAT would continue business as usual under Checkpoint, some are skeptical that this is realistic.
"While there is no doubt that the acquisition will mean good, if not potentially great, things for retailers and retail goods manufacturers, ABI Research questions where this leaves the industrial manufacturing piece of the OAT business," wrote Liard. "Checkpoint clearly is a company focused on the retail industry, and partners and customers in industrial manufacturing may ultimately decide to seek solutions from vendors that are more closely aligned with their industry. But only time and actions will tell."
It would seem a shame for Checkpoint to lose some of the non-retail business that OAT has earned, including the ambitious and cutting-edge Airbus initiative in which RFID is being deployed across all facets of the value chain. AMR's Fontanella reports that insiders at IBM (with whom OAT is partnered on the Airbus project) believe OAT will remain committed to the account, though he cautions that ultimately the company's resources will be deployed in whichever direction pays the bills: "IBM feels comfortable that OATSystems will remain a key partner in its massive Airbus RFID project and is not concerned about its commitment to the project. However, tight economies and aggressive profitability goals have a habit of putting focus on the most addressable markets, and parent Checkpoint will always win that battle."
Be sure to see tomorrow's article for more interpretation of the deal, including the $37 million valuation, the end of RFID middleware as a software category, and the potential for similar M&A in the year ahead.