3M makes second foray into security sector FT.com (reg. req.)
In Monday's post, I used news of 3M's offer for Cogent to make the prediction that we will be seeing a lot more mergers and acquisitions in the identity management space. There are many reasons to believe that this will be the case:
-The underlying technologies are becoming more robust and costs are declining offering significant returns on investment to their customers.
-More customers are making more investments and the pure ID management firms are starting to show profits.
-Big Tech. firms are sitting on a lot of cash (see Hewlett-Packard's stock buy-back and bidding war with Dell over 3PAR).
-Growth rates are good; worldwide demand is surging, especially in the developing countries.
So, with the exception of 3M and L-1's uncompleted sale, what's the hold-up?
Mathew Christy, an analyst with Standard & Poor’s Equity Research, said: “The security space has higher growth and higher margins than other parts of 3M’s business which has typically grown sales at around 8 or 9 per cent a year”.Mr. Christy has precisely identified the current running counter to the rapid consolidation scenario.
However, Mr Christy noted that given the overall size of the company, the acquisitions would add less than 1 per cent of revenues and would do little to change the company’s momentum one way or the other.
The potential deals are too small to impact the bottom lines of huge firms in any meaningful way.
This brings up several possibilities for the future of market consolidation in the ID management space:
Big firms are sitting on so much cash and, rather than using it for stock buy-backs and dividend distributions, they will spend it on acquisitions in order to carve out space in what is certain to become a huge and profitable industry.
Consolidation will occur in two stages: Small firms bought by medium-sized firms and then repackaged for sale to huge firms -or- consolidation among the small firms leading to firms large enough to make significant bottom-line contributions to the large firms.
The consolidation of the ID management industry will happen later as the market sheds more light on the quality of individual ID management firms.
Organic growth (with acquisitions along the way, of course) will lead to a new household name as the flagship firm in the identity management industry -- a new Microsoft, Oracle or IBM, for instance.