Private equity firms — including tech-focused buyout shops — have expressed an interest in buying some or all of OneSpan Inc. (OSPN), its electronic-signature software unit or its hardware division, according to sources familiar with the situation.
The sources added that some private equity managers have reached out to OneSpan directors over the past few months and haven’t gotten responses.
OneSpan declined to comment.
The expressions of interest are emerging as Christopher Kiper’s Legion Partners Asset Management LLC on Thursday, Feb. 25, launched a proxy contest seeking to install four dissident directors onto OneSpan’s 10-person board as part of an effort to have the electronic-signature and cybersecurity company consider divesting its hardware unit.
In addition, sources added that over the past couple of years Legion offered director candidate suggestions to the company but had been rebuffed.
It is unclear which PE firms have expressed an interest. However, PE firms particularly active in the tech space include Vista Equity Partners LLC, Thoma Bravo LLC, GTCR LLC, Clearlake Capital LP as well as big PE firms such as Bain Capital LLC, TPG Capital LLC and KKR & Co. (KKR).
Historically, OneSpan focused on producing hardware cybersecurity, including keychain authenticator dongles. Iin recent years, however, it has shifted into a predominantly software cybersecurity company. A majority of OneSpan’s revenue base now comes from its software unit, which includes mobile and identity software as well as two-factor authentication products. At the same time, the company’s hardware security business has been in decline.
Legion, which owns a 6.8% stake, believes private equity buyers could pay between $50 million and $100 million to acquire OneSpan’s hardware business or roughly $1.7 billion to acquire the whole operation.
In a letter that was issued to back its director candidates, the activist argued a decision to maintain OneSpan’s hardware division “imposes a structural impediment” to the company trading at a fair value. The fund argued a sale of the unit would transform OneSpan into a pure-play software company and its shares would trade closer to peer levels.
In addition, the electronics signature sector has experienced some dealmaking recently, which also suggests there could be PE interest in OneSpan’s e-signature software unit. In February, Starboard Value LP-targeted cloud document sharing, collaboration and storage company Box Inc. (BOX) agreed to acquire e-signature company SignRequest BV for $55 million.
Dropbox Inc. (DBX) in 2019 acquired OneSpan rival HelloSign for $230 million. OneSpan also competes with DocuSign Inc. (DOCU), which currently has an $44.2 billion market capitalization.
The contest follows a two-plus year campaign. In August, Legion issued a letter raising concerns about OneSpan’s founder, Ken Hunt, and urging it to sell assets such as its hardware business. In September, OneSpan reported that Hunt retired from the board.
Beyond Hunt’s resignation, the company has made other recent changes to its board in an apparent response to Legion’s campaign. In November it added Alfred Nietzel, who led the “financial execution” of a spinoff of Automatic Data Processing Inc.’s (ADP) dealer services unit to create CDK Global Inc. (CDK).
On Feb. 22, OneSpan reported in a securities filing that director Michael Cullinane was resigning. According to relationship mapping service BoardEx, a sister company of The Deal, Cullinane had served as a OneSpan director for almost 23 years.
At least two other directors have served for extended periods and could be targeted for removal: independent board chairman John Fox and Jean Holley have been on the board for 16 and 15 years, respectively.
Legion launched its public campaign at OneSpan in November 2018 with a securities filing reporting a 5.2% stake in the company, noting it could seek to add “industry and governance expertise” to the company’s board.
In addition, another activist, Ancora Advisors LLC, in February 2019 issued a note suggesting OneSpan was “severely” undervalued and should consider an “eventual sale” of the business as a whole or in parts. A person familiar with Ancora said the activist fund still owns a position in OneSpan and supports its earlier comments.
– Steve Gelsi contributed to this report