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They don’t happen all too often, but Apple (Nasdaq: AAPL ) has made another acquisition. This time, the target is the mobile and network security company AuthenTec (Nasdaq: AUTH ) , for $8 per share. It's a roughly 58% premium for the smaller company that pegs the deal’s price at $356 million.
Never heard of ‘em?
AuthenTec’s offerings include fingerprint sensor modules, embedded security software and IP, and identity management software, among others. It was founded in 1998, and went public in 2007. The company has a broad patent portfolio surrounding fingerprint biometrics, and has shipped over 100 million fingerprint sensors that are integrated into various devices. Notable customers include rivals like Hewlett-Packard (NYSE: HPQ ) , Lenovo, LG, Motorola, Nokia (NYSE: NOK ) , and Samsung. Samsung even uses AuthenTec’s security technology in its newest Galaxy Android devices.
Interestingly, shares have surpassed that $8 threshold during trading, reaching as high as $8.83 so far, as of this writing. Analysts are chalking this up to the possibility that a bidding war may erupt with rivals Google (Nasdaq: GOOG ) or Samsung stepping up with an offer, especially as both are currently customers of AuthenTec (via the Motorola subsidiary, in Google’s case).
If any competing bids do materialize, though, they'll have to be unsolicited, because AuthenTec is now subject to a "no-shop" restriction to solicit alternative proposals, according to the merger agreement. It’s not allowed to provide information or participate in talks in these cases, but it can do so with unsolicited offers.
As a public company, the prospective pair will have to jump through the standard loops of various regulatory approvals and shareholder votes. Until then, it’s possible for competing bids to show up. Apple might also keep offering some of AuthenTec’s current products to rivals to avoid being accused of locking down the technology and subsequent antitrust implications; but, surely, future innovations would be off the table for competitors.
This is a characteristic iAcquisition in many ways -- it’s small in size (less than $500 million), and is centered on IP and technology that can be integrated into Apple devices in various ways, in order to bolster their functionality. Apple almost never purchases a company for its revenue stream -- it has plenty of revenue of its own. Besides, AuthenTec’s $17.5 million in sales last quarter wouldn’t even be a blip on Apple’s radar.
The real potential lies in what Apple could do with heightened security measures on iDevices, with the most immediate implication being in mobile payments. Apple’s Passbook feature is the obvious precursor to some type of full-fledged wallet app that incorporates payment functionalities, and the iPhone maker reportedly decided to hold off before officially stepping into the mobile payments ring.
There wouldn’t be much reason to release just another "me-too" offering that lacked any meaningful innovation. Whether or not Apple chooses to adopt near-field communications, or NFC, like Google is doing, remains to be seen. Adding another secure layer of fingerprint authentication could be a point of differentiation that steps up the game with mobile payment security beyond simple passwords that can be hacked, forgotten, or stolen.
Prior to today’s announcement, AuthenTec CEO Lawrence Ciaccia recently said that mobile payments were one of the company’s key market opportunities. The company just launched a new fingerprint sensor aimed at mobile payment transactions two months ago.
It could also be used for other things, like unlocking an iPhone, a slightly different approach than Google’s Face Unlock feature where an Android device will recognize the user by sight.
May I ask who’s calling?
With the rise of mobile computing in smartphones and tablets, security will play a critical role, especially because mobile devices inherently carry more risk as they’re more easily lost or stolen. Smartphones are about as personal of a device as you can get -- far more so than personal computers -- so it’s meaningful for them to correctly recognize the user.
Apple already does this to an extent with its personal assistant, Siri, who will learn your name and family members, and even call you "Rock God" (cringe), if you’re so inclined.
This is another way how future iPhones will know who you are.
Apple’s commitment to differentiating itself from competitors is one of its biggest competitive advantages that will help it drive growth for years to come. Sign up for this brand new premium research service that’s all Apple all the time. Another company is also hoping to ride the mobile revolution by powering the next generation of smartphones and tablets from the inside. Read more in this special free report.