Terrorist attacks spawn idea for L-1 Identity
Most of us remember where we were and what we were doing on the morning of Sept. 11, 2001.
For Robert LaPenta, president, chairman and chief executive officer of Stamford-based L-1 Identity Solutions, that day's terrorist attacks led to an epiphany about U.S. defense, and a company aimed at filling the huge, suddenly apparent, gaps.
"I watched the towers come down from my offices on 600 Third Ave.," said LaPenta, who was president of a company he co-founded, L-3 Communications, at the time.
"It was that event that really was the genesis, the starting point of me beginning to think about a new business that ultimately spawned L-1," he said in an interview with Hearst Connecticut Newspapers.
"I realized on that day that we spent $600 billion a year on aerospace, defense, ships, planes and weaponry, you name it," LaPenta said. "None of those things really mattered when it came to what transpired on 9/11, where 20 terrorists with basically false driver's licenses and a $25,000 budget were able to inflict the biggest attack on U.S. soil since Pearl Harbor."
Terrorism and identity theft, the 21st century's addition to the inescapable staples of death and taxes, keeps Stamford-based L-1 Identity Solutions busy.
The publicly traded company produces finger- and palm-print scanners, automated facial recognition systems, automated iris recognition systems and multi-biometric-based readers used to secure buildings and restricted areas, among numerous other products and services.
Biometrics is the automatic identification or identity verification of an individual based on physiological or behavioral characteristics, the authentication of which is done with computer technology in a noninvasive way to match patterns of live individuals in real time against enrolled records, according to the Washington, D.C.-based International Biometric Association. Biometric products recognize faces, hands, fingers, signatures, veins, irises, voices, skin and fingerprints.
To sell or not
L-1 also produces equipment that makes all U.S. passports and 85 percent of the driver's licenses in the United States, including those of the Connecticut Department of Motor Vehicles.
LaPenta grew the company to more than $650 million in sales in 2009, after lauching it in 2006 in its current corporate structure.
Today, like many fast-growing entities, L-1 must decide whether to stay as is or merge with another company.
Earlier this month, L-1 Identity Solutions said it retained Goldman Sachs & Co. and Stone Key Partners LLC as financial advisers to "explore strategic alternatives to enhance shareholder value," which L-1 said might not include a sale.
Brian Ruttenbur, an analyst who follows L-1 for Morgan Keegan & Co., said L-1 might have trouble finding a buyer because its product line is very diverse. LaPenta has said L-1 will be sold as a whole and not in individual pieces.
L-1's strengths include its dominant position in the U.S. driver's license market, Ruttenbur said, adding that the 64-year-old LaPenta theoretically could retire.
But LaPenta, an active owner of thoroughbred race horses, said he has no current plans to quit his primary career. He said L-1 will decide in the next two months whether or not to sell itself or have a debt offering and recapitalize its balance sheet. L-1 had outstanding debt of $463.6 million at the end of last year.
"If (a sale) were to happen, we would look to get involved," LaPenta said. "There has been a lot of interest expressed by both domestic and international parties. I spent my whole life in the aerospace, defense and homeland securities industries, acquiring them, fixing them and integrating them. We will stay involved."
LaPenta has made other career changes.
After a 24-year career at Loral Corp., he co-founded L-3 Communications in 1997. L-3 stands for co-founders Lanza, LaPenta and Lehman Brothers. New York City-based L-3, which has annual sales of $15.6 billion, provides command, control, communications, intelligence, surveillance and reconnaissance systems, aircraft modernization and maintenance and government services. In 2005, LaPenta left L-3 and founded L-1 Investment Partners, which led to the formation of L-1 Identity Solutions.
L-1 Investment Partners began with $100 million in capital and grew through acquisitions of companies such as SecuriMetrics Inc., Iridian Technologies, Advanced Concepts Inc., Digimarc, McClendon Corp., Integrated Biometric Technology and myriad others.
"Our growth has come about by buying the right companies and by strong organic growth," LaPenta said. "What we perceived to be the market opportunity, based on the demographics and the way we saw the world moving, whether it was border access or tactical services in the government, led us to believe this was going to be a revolutionary space, so we put together these companies."
Homeland Security Today magazine named L-1 among its Rising 10 of 2009, a list of companies that promise to grow quickly in coming years because of either recent contracts or their overall positioning within expanding areas of homeland security.
Homeland security issues will fuel much of L-1's future growth, LaPenta said, adding that about 80 percent to 90 percent of L-1's business comes from public sector customers such as federal, state, local and foreign governments.
"Over the next three to four years, governments will still be bulk of the growth," he said.
Its private sector, or commercial, customers include financial companies, casinos, insurance and medical companies, LaPenta said.
Don't underestimate the private arena, one biometrics expert said. "The commercial market is starting to move ahead quite rapidly," said Peter O'Neill, president of findBiometrics, a Toronto-based information company.
"Biometrics is being used in just about every vertical market you can think of right now: in lunch lines at colleges, in the financial sector and at cash machines," O'Neill said."One of the key drivers is convenience; not having to go through a long process every time you forget your password."
O'Neill said iris and face recognition can replace a password. He said he enters his health club in Toronto using his fingerprint.
Biometric recognition systems also can be used to open medical records files, hotel rooms and medicine cabinets, O'Neill said.
But Biometrics companies need more than the latest gadgetry to excel, according to O'Neill.
"The technology is very solid, so the companies who succeed will be the ones who market themselves the best," he said.
"Nowadays, you go to a bank and the manager is using a fingerprint scanner instead of having customers bring in ID cards or use passwords," Biondo said, adding that facial recognition equipment can prevent someone from using multiple identities and can combat fraud in Medicaid and public entitlement programs.
In Iraq, Afghanistan
The tragedy of war also boots business at L-1.
"We were in Iraq and our products are now being deployed in Afghanistan," LaPenta said. "They include jump kits that take biometric information and do matching to identify people in the field."
"We are a prime provider of intelligence gathering, mission planning, mission analysis, cyber-security and imagery analysis and we do a lot of counterterrorism work for the agencies, which I cannot go into too much detail with," he added.
LaPenta said the 9/11 terrorist attacks and the unsuccessful "Christmas bomber," who tried to light a plastic explosive with a syringe sewn into his underwear on Northwest Flight 253 near Detroit, will ensure future demand from government customers.
He estimated the size of the worldwide market for security technology and related services at $2 billion annually and growing 15 percent to 20 percent per year.
L-1's competitors in that market include ImageWare Systems Inc. of San Diego, Burlington, Ontario-based Acsys Biometrics Corp. and California-based Security First Corp., according to Yahoo! Finance. Acsys and Security First are privately owned.
LaPenta said L-1's rivals are publicly traded Cogent Systems Inc. of South Pasadena, Calif., Paris-based Safran Group's Sagem Securite and Cross Match Technologies Inc. of Palm Beach Gardens, Fla. Safran is an aerospace, defense and security company with $14 billion in revenues.
To stay competitive, L-1 spent $20.7 million on research and development last year and $25.2 million in 2008, according to its 2009 financial report.
At the end of last year, L-1 had 2,339 full-time employees worldwide. It does not disclose headcount by location, but employed 26 people at its headquarters at 177 Broad St. in Stamford in 2007.
L-1 has its Research Center in Jersey City, N.J., Washington Operations in Arlington, Va., and international offices in Miami, the United Kingdom, Germany, Dubai, United Arab Emirates and Sydney, Australia. It has divisional offices in Massachusetts, Minnesota, California, Ontario, Tennessee, Virginia and Maryland.