Although some investors believe that CCL Industries’ bid of US $443 for Checkpoint Systems undervalues the company, CCL executives clearly value the RFID aspect of the Checkpoint deal.
“One of the main reasons we decided to make the acquisition is because Checkpoint is one of the major leaders in the world in the development of RFID for better management of inventory, and they also have software packages that work in conjunction with the labels,” Geoffrey T. Martin, President & CEO of CCL, said during a conference call.
CCL announced the acquisition last week. It is expected to be voted on by shareholders during the second quarter. CCL, a a global provider of specialty label and packaging solutions, plans to capitalize on Checkpoint’s RFID solutions to bolster its own RFID business.
CCL is especially interested in Checkpoint’s stake in the apparel RFID market, the fastest growing part of RFID in retail. Checkpoint is the No. 2 global provider for RFID solutions in apparel, with leading brands such as Target, Kohls, Home Depot, Decathlon and Inditex among its top RFID retail customers. For the 12 months ended Sept. 27, 2015, Checkpoint generated net revenue of approximately $820 million.
Aside from apparel retail, Martin expects that the deal will complement some of CCL’s smaller RFID business in automotive and healthcare.
“We expect to be able to apply the RFID knowledge right across the company,” says Martin. “We have some nice RFID applications in automotive and healthcare, but that’s not the overriding driver of the transaction. The overriding driver is to be in that apparel space which is where smart label technology is being adopted in a big way.”
CCL was also attracted to Checkpoint’s gross profit margin of 42 percent, and the fact that CCL expects to squeeze $40 million in synergies out of the deal in the first 18 months.
“They have some proprietary technology (OATSystems) in the RFID space which is a big driver of the high growth profit margin,” he said. “I do think some of it has to do with the need to do installs with equipment that goes with the RFID labels, which is high margin. There is a lot of opportunity there.”
The potential for future RFID deals is also significant for CCL. In its last quarterly sales call, Checkpoint CEO George Babich noted that the conversion of just a small handful of the RFID, EAS or R&D projects in the pipeline to an enterprise-wide rollout would dramatically change Checkpoint’s near-term top and bottom line financial trajectory
North Star Partners, one of the largest investors in Checkpoint Systems with a 3.9 percent ownership stake, is objecting to Checkpoint’s offer from CCL. Imperial Capital is also on record that the deal did not fetch enough return for Checkpoint shareholders.