TPG French Smart Card’ Maker –

In one of the largest private equity investments in a European technology company, Texas Pacific Group this month invested over $300 million in Gemplus, a maker of memory and microprocessor-based smart cards, and may invest up to a total of $500 million in the company.

Terms of the transaction were not disclosed.

Texas Pacific was the sole investor in the deal and capital for the transaction came from TPG Partners III LP. The fund, which launched in September 1999 (BUYOUTS Sept. 27, 1999, p. 1) has a target of more than $2.5 billion, and one-third earmarked for investing in European deals.

“This is a very extraordinary transaction,” said Abel Halpern, managing director at Texas Pacific Group Europe. “Gemplus is a company that has $800 million in revenue and is growing organically at 30% to 40% a year in its core business of GSM (Global System for Mobile Telecommunications) telephony.”

Based in Gemenos, France, Gemplus produces memory and microprocessor-based smart cards and electronic tags.

Paris-based Candel & Partners advised Gemplus on the deal.

Halpern said that two-thirds of the mobile phones outside of the U.S. operate on the digital protocol GSM. He said that Gemplus supplies approximately 42% of the world’s GSM cards and solutions. “They are the clear market leaders, and they make money,” he said.

Gemplus will enable the growth and expansion of wireless functions and services via the mobile phone and allow PC users “total security” with a smart card, Halpern said.

“Whether you are Microsoft and want to prevent piracy when you are selling Microsoft 2000 or an online financial service provider who wants to authenticate the identity of a client, the smart card is the enabling technology [to do so],” he said.

“Although smart cards haven’t taken off yet in the computing environment, we think we’re right on the edge of the tornado,” said Andrew Dechet, a partner at Texas Pacific Group Europe. “There is going to be a tornado because Microsoft’s Windows 2000 is smart card enabled and Microsoft is pushing for the use and issuance of smart card readers in all PCs. We expect that to happen in the next couple of years.”

“These kinds of investments are few and far between,” Halpern said. “We are going to transform an $800 million company into a $5 billion company. In the European private equity world, this is a landmark investment. In the worldwide community of technology investing, this is probably the single largest private equity investment for a technology company if you exclude telecom infrastructure.”

Halpern declined to comment on Texas Pacific’s exit strategy for the investment.

The Gemplus investment marks the second high-profile tech deal and European investment for the group. Last year, Texas Pacific led the $1.6 billion acquisition of the semiconductor components division of Motorola Inc. (BUYOUTS May 17, 1999, p. 1) and the $4.4 billion buyout of Allied Domecq PLC’s pubs division in the U.K. (BUYOUTS Sept. 27, 1999, p. 1).

Other Texas Pacific investments in the European technology sector include the $131 million buyout of Zurich-based Electrowatt, an international supplier of payphones and smart cards, in 1998 (BUYOUTS April 20, 1998, p. 12).

A number of buyout funds were launched last year targeting the technology sector by investment groups including Hicks, Muse, Tate & Furst (BUYOUTS December 20, 1999, p. 1) and Silver Lake Partners LLC (BUYOUTS February 8, 1999, p. 1), but none have yet invested as much equity in either the domestic or international tech arena as Texas Pacific.

An international private equity firm, Texas Pacific was founded in 1993 and has made investments in a broad range of industries including consumer products, health care, airlines, food and beverage, and oil and gas.