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On Wednesday, security technology provider Identiv, Inc. or "Identiv" (NASDAQ:INVE) added another chapter to its multi-decade story of underperforming investor expectations.
Formerly known as SCM Microsystems, the company went public at a reverse stock split-adjusted price of $130 per share in the midst of the dot-com bubble. Shares peaked well above $1,200 in early 2000, only to lose 95% of their value over the next twelve months:
Macrotrends.net
Following the acquisition of Switzerland-based RFID technology provider Bluehill ID AG in 2010, the combined company adopted the new name "Identive Group" which was changed to "Identiv, Inc." in 2014.
However, the addition of RFID solutions didn't really change the company's fortunes, thus requiring Identiv to dilute common shareholders several times to stay afloat until today.
A short phase of renewed investor excitement with regards to the company's RFID business proved to be unfounded a couple of years ago.
Following another year of disappointment, in early 2023 management decided to initiate a review of strategic alternatives and hired an independent advisory firm.
Last month, Identiv reported less-than-stellar fourth quarter results and provided Q1/2024 guidance well below consensus expectations as one of the company's main RFID solution customers is "undergoing a technology transition" thus resulting in the requirement to pause shipments for "the next two to four quarters," as outlined by management on the Q4 conference call.
However, resulting damage to the stock price proved to be rather short-lived as market participants apparently used the selloff to position themselves ahead of an anticipated near-term strategic transaction.
On Wednesday, the company finally announced the eagerly awaited outcome (emphasis added by author):
Identiv (...) has entered into a definitive asset purchase agreement to sell its physical security, access card, and identity reader operations and assets to Vitaprotech, a security solutions provider. The proceeds from the sale will significantly strengthen Identiv’s financial position, generating capital to fund future organic and inorganic growth of its specialty IoT solutions business.
Under the terms of the agreement, Identiv will receive a cash payment of $145 million upon closing of the transaction, subject to customary adjustments. Identiv, Inc. will remain a publicly listed company on the Nasdaq stock exchange under the ticker symbol “INVE.”
Approximately $10 million of the proceeds will be used to repay outstanding amounts under the company's existing credit facility with East West Bank.
The transaction is expected to close in the third quarter, subject to regulatory and stockholder approvals as well as customary closing conditions.
According to details provided in Identiv's presentation filed with the SEC, the deal will result in the sale of 32% of the company's assets which accounted for 63% of FY2023 revenues.
Apparently, the company is not only selling the entire high-margin Premises segment but also a large part of its Identity segment while keeping only the struggling, low-margin RFID operations.
Please note also that a number of senior executives including current CEO Steven Humphreys will move over to Vitaprotech while Identiv's remaining operations will be spearheaded by incoming President and CEO Kirsten Newquist, who will be joining the company from Avery Dennison Corporation (AVY).
On Wednesday's strategic review update call, management was reluctant to provide any sort of financial details on the cost structure of the company's remaining operations. However, considering the larger size and inferior margin profile of the Identity segment, it's fair to assume that Identiv's stub business is likely to generate meaningful initial losses.
Going forward, the company plans to sharpen its focus on the healthcare markets:
Company Presentation
Identiv also intends to bolster its new core business with acquisitions and consequently does not expect to pay out any of the sales proceeds to common shareholders.
Quite frankly, I consider this a terrible outcome for equity holders, as they will be left with a struggling, low-margin RFID business with the cash proceeds from the sale of company's more stable, high-margin operations apparently being earmarked for augmenting Identiv's stub business as well as covering material initial losses.
It almost seems like the company simply didn't manage to find a buyer for the worst-performing part of its operations.
Considering the combination of a vastly increased risk profile going forward and complete lack of shareholder capital returns, Wednesday's 20% selloff can hardly be viewed as a surprise.
With the remaining low-margin RFID operations challenged by the above-discussed technology transition at a key customer, I wouldn't be surprised to see the company's post-closing quarterly revenue run rate deteriorating to below $10 million, thus resulting in substantial initial cash losses.
Bottom Line
Identiv's eagerly awaited strategic transaction announcement failed to impress market participants. Rather than receiving an outright takeover offer or at least pocketing a large special dividend, shareholders will now be left with the low-margin, money-losing RFID operations and proceeds from the sale of the company's stable, high-margin operations apparently being earmarked for acquisitions, debt repayment and covering anticipated cash losses.
Considering Identiv's dismal track record, current challenges in the remaining RFID business as well as the company's vastly increased risk profile, I would advise investors to consider selling their shares and moving on.
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