A NEW VENTURE INTO THE DIGITAL SECURITY INDUSTRY FOR THALES AS IT TAKES OVER GEMALTO

December 2017, the French aerospace company Thales and the digital security firm Gemalto (secure software, biometrics and encryption for businesses and governments to authenticate identities and protect data), jointly announced the agreement on a recommended all-cash offer for all issued and outstanding ordinary shares for Gemalto (€51 per share). The waiting period has been extended until 15th August 2018.

Thales will combine its digital businesses into Gemalto, which will continue to operate under its own brand as one of Thales’ seven global business units. By acquiring Gemalto, Thales adds around €3 billion of revenue for 2018 to its digital business sales and acquires a set of technologies and competencies which have applications across Thales’ five vertical markets (Aeronautics, Space, Ground transportation, Defence and Security).

The combination of the two signifies that the French-Dutch company Gemalto will return under the French flag as Thales takes its shares. The digital security firm is currently based in Amsterdam and run by top Chief Executive Officer Philippe Vallée (since 2016) and Non-executive Chairman Alex Mandl. The company was launched back in 2005, after a merger of Axalto and Gemplus. The governing principle between these digital firms is the current Gemalto’s NEC: Alex Mandl, as he was also CEO of Gemplus, In-Q-tel, and former CIA employee. As a reminder In-Q-tel is an American non-profit firm created to support American intelligence agencies such as the CIA, and funds amongst others Palantir Technologies (Data Analytics), Recorded Future (Predictive Analytics), and Interset (Security Analytics).  Therefore, he will continue to play a crucial part with the French CEO in the governance, direction, and intelligence of the company within the merger with Thales.

Gemalto’s unrivalled and innovative technology portfolio will put Thales in a highly differentiated position to provide not only to enterprises and government agencies but also implement gradually new security and technologies within its own different markets.

Thales’ interest in acquiring Gemalto reflects its recognition of several opportunities such as securing the American 3M’s Identity Management business which specialises in biometric technology, after losing the Safran Morpho deal to Oberthur Technologies (U.S. IDEMIA), and announced in 2017 new on-demand connectivity deals with consumer device makers like Microsoft, industrial players such as the PSA Group, and mobile operators like AT&T and Telefonica (see table below).

All in all, whilst Gemalto will appear under the French flag just like Morpho, it seems in reality to be highly influenced by American direction by reason of Alex Mandl, and its affiliation with its new U.S. subsidiary 3M.

From Thales’ point of view, acquiring Gemalto represents first and foremost an acceleration of its digital strategy: over the past three years, the aerospace company has significantly increased its focus on digital technologies, investing over €1 billion in connectivity, cybersecurity, data analytics and artificial intelligence, in particular with the acquisition of Guavus, Sysgo, and Vormetric.

In addition, further indications of Thales’ interest for digital security within the defence environment can be seen through its participation in the French “Matrice” program with the “Hackathon” project (“hacker” and “marathon”) which is now in its second year. Thales has partnered up with the French Navy and “l’Ecole 42” to create a 3-day competition for students to develop a collaborative sharing tool intended to feed a specific cloud for maritime users. This initiative represents the new direction the French Defence and Maritime industry is taking, notably with the Thales-Gemalto partnership leading the way.

 

Written by Alexandra Stafferton (Junior Analyst) for OIDA Strategic Intelligence

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