And the winner is… Thales Group (at least so far…)

Last week, we explained the rationale behind Atos’ “friendly” offer to acquire Gemalto. Unfortunately for Atos, their proposal was rejected and less than a week later, Gemalto’s shareholders gave green light to the company’s acquisition by the Thales Group – a French defense and technology giant. The discussions have been ongoing at least since last summer and Atos’ final move just helped crystallize the deal. After all, we live in a fast-changing world and anything can happen before a deal is eventually signed!

So, apart from the financial reasons, what does Thales Group hope to gain from this acquisition?

Built on the consolidation of the powerful French aerospace industry, Thales (EUR 14.9 bn) is a world leader in aerospace, transportation, defense and security. The group is strategically controlled by the French government and Dassault Aviation (which builds jet fighters).

Due to the sensitive nature of the activities, integrated digital security is at the core of the Thales Group’s industrial strategy; Thales provides real-time security decision-making systems for highly heterogeneous and complex environments operating on a large scale, such as homeland security or transport systems, where IoT is a game-changer. Its current security portfolio reflects its military expertise and is based on very strong cryptographic foundations applied to PKI, credentials management and data encryption. In the past two years, Thales has made strategic acquisitions in the field, such as Vormetric (data encryption) or Guavus (real-time big data analysis).

However, the size of Thales’ pure digital security activity (carved out from the Defense & Security business) appears still modest (EUR 500 m) compared to the rest of the group. The acquisition of Gemalto provides a good opportunity for Thales to reach a critical size and reinforce its presence in new “civil” markets, such as financial services or telcos. Gemalto is strategically positioned with strong technology and IP (and unique know-how) on a very large scale, identity and encryption systems and long-standing relationships with governmental agencies and large financial institutions. With the Gemalto acquisition, the Thales Group will become a leading world player in the area of digital security, with a turnover of EUR 3.5 bn.

On the other hand, Gemalto has never recovered from the shifts in its core telco and banking markets, which deeply impacted its smartcard and SIM business it was founded on, and they needed to find a way out. The Thales proposal is attractive, as it avoids a break-up of Gemalto into business lines – a strategy that was readable between the lines of the Atos bid.

However, a number of challenges will arise from the acquisition that need to be addressed:

  • Gemalto is still a card manufacturer to a large extent, with a large proportion of the workforce dedicated to these activities as well as dedicated facilities around the globe.
  • Together, Gemalto and the Thales Group could potentially occupy a dominant market share in the critical HSM market, which might result in an anti-competitive issue.
  • Gemalto’s SafeNet division is a contractor of the US government, which might question the presence of the French government in the new company set-up.