Kapsch buying Mark IV (with UPDATE Monday)

Kapsch the big European-based toll systems company is buying Mark IV IVHS, sole supplier of transponders and readers to the huge E-ZPass group of tollers in America. The announcement of the buy was made Friday evening US time by Kapsch TrafficCom AG from their head office in Vienna to meet the requirements of the Vienna stock exchange where their shares trade.

No announcement has been made in North America, but we understand that will occur on Monday. (ADDITION AT BOTTOM)

Purchase price of Mark IV IVHS is around $70m (E50m).

The announcement from Vienna says the exact price is subject to certain closing conditions and adjustments based on working capital included with the business. Kapsch will acquire Mark IV IVHS through subsidiaries.

Target date for the financal close is Nov 30.

Long discussed, speculated, suggested

There has long been speculation about this as a logical merger.

Mark IV, based in the Toronto, Canada area has a huge market for its active transponders in the US, plus sales in Canada and Mexico, but virtually nil sales outside north America.

Kapsch on the other hand has huge toll systems business all over the world, but almost nothing in north America.

The two companies are a perfect fit.

Mark IV has around 22 million transponders on the roads of the northeast, mid-Atlantic and mid-west where the E-ZPass standard prevails. Mark IV has over 3,700 toll lanes equipped with their readers. They have sold equipment to 24 toll operators in 14 states comprising the E-ZPass group.

Both active systems

Kapsch like Mark IV specializes in active in-vehicle transponders - transponders that have their own power supply and can initiate data exchanges. Active transponders contrast with passive transponders that respond only to data sent by the toll operator's gantry-born reader and which make use of the energy of the incoming signal to respond. TransCore, Federal Signal/Sirit and Neology specialize in the passive transponder systems in use in California and the US south - Texas and Florida especially.

Kapsch and Mark IV partnered to bid a joint proposal to North Carolina - their offering being a transition to 5.9GHz systems while supporting sticker tags and IAG transponders with a multiprotocol reader. (TransCore won that with sticker tags, and multi-protocol readers.)

Mark IV has several more years of sales of its E-ZPass-specification transponders and readers because the E-ZPass group has a leisurely paced procurement under way for a next-technology system. Starting 2006 the E-ZPass group began seeking proposals. The process is quite secretive but word is contenders are TransCore offering a transition to ISO 18000 6B sticker tags and Mark IV and Kapsch with similar proposals for 915MHz/5.9GHz side by side operations until everyone is 5.9GHz.

The 5.9Ghz transponder is a $20 to $30 transponder of fine engineering and great capability versus a less elegant $2 to $3 passive sticker tag that does a limited job.

E-ZPass procurement so glacial Mark IV has several years more sales

At its present glacial pace the E-ZPass Group will probably test for another two years through to 2013, then take another year or two to choose the preferred system and write a contract, having strung the whole procurement out to nearly ten years (2016).

Cynics call it a contest for "the best Last Gen" technology since in the time since the procurement started major advances have been made that cannot under the rules be considered - such as the latest multi-protocol readers and the ISO 18000 6C tags - an advance on the 6B style tags.

Meanwhile...

Meanwhile Mark IV continue selling their 1995 design 915MHz equipment under a several-times-renewed sole source contract with the E-ZPass Group - see map at bottom of this report.  With a battery life of about seven or eight years, and 22m in use, the existing stock of E-ZPass transponders provide a 2.5m to 3m/year replacement market for Mark IV.

Kapsch world's biggest supplier of 5.8GHz CEN gear

Kapsch is the world's largest supplier of 5.8GHz European CEN TC278 standard active transponders. Similar in capability to the existing E-ZPass transponders in speed, memory and processing power they have some of the narrow beam locational advantage of the North American 5.9GHz standard because of similar frequency.

Kapsch and Mark IV have both been deeply involved (along with Raytheon and TransCore) in the research and development of the North American standard 5.9GHz system which also has capabilities for a range of applications outside toll collection - vehicle safety, driver information, in-vehicle signage, navigation, mobile commerce. It is far better than 915MHz at locating the vehicle accurately, and therefore well suited to toll lanes alongside free lanes.

Kapsch has supplied toll equipment to 240 tollroad operators in 39 countries and boasts 13,000 toll lanes equipped and 18 million transponders in use worldwide.

Kapsch has annual revenues of about $300m v Mark IV $50m. Kapsch has 1,500 employees and Mark IV 142.

Mark IV is held privately by a British based group of investors. Its manufacturing is in Mississauga Ontario a western suburb of Toronto. US operations have a facility in Bethlehem PA and an office in Annapolis MD.  Kapsch in the US operates out of digs in northern Virginia.

Kapsch announcement - sorry poor quality but we got it in roundabout fashion:

http://www.tollroadsnews.com/sites/default/files/KapschPR.pdf

http://www.kapsch.net/en/Pages/default.aspx

http://ivhs.com/

MORE ON MONDAY

Official version of press release Monday:

http://www.tollroadsnews.com/sites/default/files/KapschBuysMk4.pdf

ADDITIONS Monday:

Kapsch spokesman Penny Lee said with the official announcement in North America, Monday, that the acquisition of Mark IV IVHS was "very friendly."

Chris Murray president of Mark IV IVHS is quoted: "This is a win-win. Today is the beginning of a new era in the electronic toll collection business. This combination brings together the best of both organizations and cultures to position us to succeed in the dynamic global transportation industry. I look forward to working with the employees of both companies as we begin a new chapter continuing to provide top-of-the-line technology solutions and excellent customer service.”

"Both sides see the value of this, that there is a lot of synergy between the two companies and so there has been nothing acrimonious at all about the acquisition. They see it as an opportunity to strengthen their offering in North America and globally," Lee says

She said the joint Kapsch/Mark IV proposal put to North Carolina Turnpike for their toll system got people in both companies to see the value of a more permanent get-together of some kind.

There are no plans for any immediate changes in the way the companies work, Lee says.

Mark IV IVHS does most of its manufacturing and development work out of its plant in Mississauga Ontario in the western suburbs of Toronto. Kapsch has facilities in Sweden and Austria and a US R&D shop in San Diego, and a sales office in Sterling VA.

Mark IV IVHS has North American origins in the early 1990s but for the past several years it has been the toll equipment arm of a diversified British company.

Georg Kapsch, CEO, Kapsch is quoted in the official statement: “The new company will not change existing and established contracts with MARK IV IVHS customers or interrupt day-to-day operations. MARK IV IVHS team members will continue to provide the service and support that customers throughout the United States, Canada and Mexico have come to rely on.”

Kapsch called it "an exciting day for our customers, our employees and our shareholders" because what he called the "new company" would have the financial strength and ingenuity to provide "industry-leading quality" to customers in the toll business.

Kapsch called the combined companies "a natural fit" that could provide "End2End" (yes) solutions for tolling and trucking.

Mark IV's major business outside toll equipment has been supply of ASTMv6 transponders and readers to truckers for weigh station bypass in many US states under a program branded PrePASS. About a million US and Canadian trucks have PrePASS transponders.

Kapsch has been involved in truck toll systems in Austria, Czech Republic and parts of Switzerland. These have been compared favorably with the rather cumbersome GPS-based Toll Collect brand in operation on the Germany autobahn network. (CORRECTION HERE)

Unclear is what effect the Kapsch buy of Mark IV will have on the protracted E-ZPass new technology procurement. Both companies are thought to have proposals in play, along with TransCore. They say under the rules of the procurement they are not allowed to talk about it.

TOLLROADSnews 2010-11-05

ADDITION 2010-11-08 13:00