Neopost S.A.

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Neopost S.A.

113, rue Jean-Marin Naudin
92220 Bagneux
France
Telephone: ( + 33) 1-45-36-3000
Fax: ( + 33) 1-45-36-3170
Web site: http://www.neopost-group.com

Public Company
Incorporated: 1992
Employees: 3,400
Sales: EUR 800 million ($750 million)(2002)
Stock Exchanges: Euronext Paris
Ticker Symbol: NEO
NAIC: 333313 Office Machinery Manufacturing

Neopost S.A. is Europe’s largest and the world’s second-largest manufacturer of mailroom equipment and mailing and logistics systems. (Pitney Bowes, of the United States, is world leader.) Based near Nanterre, France, Neopost has been expanding its global market share, which has risen from 15 percent to more than 25 percent, through a number of strategic acquisitions. In 2002, the company finalized its acquisition of the industry’s number three player, Ascom Hasler, formerly part of Switzerland’s Ascom group. Neopost offers a full range of mailing systems, including mail franking equipment, folding and other document systems, and parcel tracking and other logistics systems equipment. Neopost has also been a pioneer in so-called “e-postage” systems, which allow for Internet-based postage, bar coding, and related products. Forecasts for the market for Internet-based postage systems range from $500 million to $2 billion per year in the United States alone. That market represents Neopost’s single largest market, at 43 percent of Neopost’s sales of EUR575 million ($550 million) in 2001. France is the group’s second biggest market, at 36 percent of sales, while the United Kingdom accounts for 12 percent of sales. Other important markets for Neopost include Germany, Italy (where the company holds a 40 percent market share), and the Benelux countries. Neopost operates subsidiaries in Belgium, Canada, Ireland, Italy, the Netherlands, Spain, the United Kingdom, and the United States. The company is quoted on the Euronext Paris Stock Exchange and is led by chairman and CEO Jean-Paul Villot.

From Origins in the 19th Century to Industry Leader in the 1980s

Neopost was formed through a management-led leveraged buyout of the then-Alcatel NV’s Friden Alcatel mail systems equipment division in 1992. That operation had been established through the merger of Alcatel’s mailing and logistics equipment division with the United States’ Friden Mailing Equipment Co. in 1979. Both companies had long been involved in the manufacture of mail franking and processing equipment, a market that remained dominated by Pitney Bowes.

Alcatel dated from 1879, originally named Société Alsacienne de Constructions Atomiques, de Télécommunications et d’Electronique, and had been one of France’s pioneering telecommunications companies, before being acquired by the CGE (Compagnie Générales d’Electricité) conglomerate in 1966. In 1970, Alcatel launched the world’s first digital switching equipment. By then, Alcatel had also become one of Europe’s leading manufacturers of postage meters and stamping equipment, a market the company had entered in 1924.

The European market, dominated by postal monopolies, left little room for expansion, and by the late 1970s, Alcatel sought an entry into the huge U.S. market. Yet the U.S. market itself remained restricted to just four companies authorized by the United States Postal Service to produce postage metering equipment. In 1979, Alcatel found an entry when it merged its mailing and logistics equipment division with Friden Mailing Equipment.

Friden had been founded California in 1933 by Swedish-born inventor Carl Friden, who had already a number of patents to his credit, including an early calculating machine. Friden, who had arrived penniless in the United States during World War I, became quite wealthy after selling the patent to his first machine in 1918. With the stock market crash of 1929, however, Friden lost most of his fortune and was forced to start again.

In 1933, Friden founded his own company, the Friden Calculating Machine Company, and began to work on an entirely new calculating machine, one with a design that would not infringe on his previous machine’s patents. Friden’s company managed to finish its first machine by 1934, winning the company its first order from the U.S. government. Friden continued to develop new equipment, including the first fully automatic calculating machine, introduced in 1936. By the outbreak of World War II, Friden’s company had grown to more than 1,300 employees. Friden then turned over its production to support the war effort, winning some $20 million in ordnance contracts.

After its founder’s death in 1945, the company continued to develop new machinery, and by the 1950s Friden had grown into a major company in North America, operating sales and service offices throughout the region, with its products distributed internationally as well. By then, however, the birth of the electronics industry and the development of the first computers were beginning to make Friden’s calculating machines obsolete. In response, the company turned to a different market, that of postage meters, introducing its first metering machine in 1956.

By the early 1970s, Friden had come to focus on its postage meters, changing its name to Friden Mailing Equipment Co. Yet the United States remained dominated by Pitney Bowes, which held some 95 percent of the market. Lacking the funds needed to make a push for more market share, Friden found itself struggling by the middle of the 1970s. In 1976, the company posted losses of more than $3.5 million on sales of just $15 million. Three years later, however, Friden and Alcatel found each other—the former attracted by the latter’s deep pockets; the latter attracted by the former’s coveted manufacturing and leasing rights for the U.S. postal meter market.

Growth and Innovation in the 1980s and Early 1990s

Alcatel paid $14 million for Friden, forming Friden Alcatel as a subsidiary of the larger Alcatel group’s mailroom products division. Soon after the merger, the company launched a new product that had been in development at Friden for some time— the world’s first electronic postage meter. Because the new meter offered more accurate scale and metering capabilities, it was set to revolutionize the industry. Yet the Friden company’s original design proved flawed, with a high percentage of meters breaking down, and Friden Alcatel was forced to foot the bill for shipments back to the factory.

With financial backing from its Alcatel parent, however, Friden Alcatel went back to the drawing board, redesigning the electronic meter to produce a more reliable device, while at the same time eliminating nearly one-third of the machine’s components. The resulting product enabled Friden Alcatel to begin asserting itself on the U.S. market, boosting its position from a six percent share to a share of 14 percent of the country’s market by the mid-1980s. By 1984, Friden Alcatel had become profitable, with sales of more than $60 million. By the end of the decade, the company’s sales had topped $100 million. Friden Alcatel’s success helped boost Alcatel’s mailroom products division to the rank of number two worldwide.

Friden Alcatel continued to innovate in the early 1980s. The emergence of independent postal services, including United Parcel Service and Federal Express, created a new demand for logistics equipment and systems. Friden Alcatel extended its metering equipment into this new area, introducing its All-electronic Shipping & Mailing System in 1982. The following year, the company introduced the scale-based Manifest Shipping system. Then in 1984, the company integrated its shipping system with the growing business application market, linking its logistics and metering systems with computer-based platforms.

Friden Alcatel broke new ground in 1990 with one of the first attempts to link metering systems with telecommunications capacity. By 1991, the company had rolled out its new product, Postage-On-Call, which allowed users—especially small and mid-sized businesses—to refill postage meters over the telephone. That year, the company rolled out another computer-based product, the Friendship Manifest Shipping system, based on the emerging PC standard.

The Formation of Neopost

By then, Friden Alcatel’s parent CIT-Alcatel had undergone a number of significant changes, merging first in 1985 with Thomson Télécommunications, under the name Alcatel, and merging again with ITT Corporation’s European telecommunications operations in 1986. That merger created Alcatel NV, based in Belgium, which became the world’s second-largest telecommunications company, behind AT&T. Then, in 1987, Alcatel’s parent company, CGE, which had been owned by the government since the Socialist-backed nationalization program of the early 1980s, was privatized.

Key Dates:

1879:: Establishment of Société Alsacienne de Constructions Atomiques, de Télécommunications et d’Electronique, later Alcatel.
1924:: Alcatel begins production of postage metering machines.
1933:: Establishment of Friden Calculating Machine Company in California.
1956:: Friden begins production of postage metering machines.
1979:: Alcatel acquires Friden and merges its mailroom and logistics equipment operations as Friden Alcatel; Friden Alcatel launches the first electronic postage metering machine.
1992:: Lazard, Frères backs management-led leveraged buyout of Friden Alcatel, which is renamed Neopost.
1998:: The company acquires Lirma in Italy.
1999:: Neopost goes public on Euronext Paris Stock Exchange.
2000:: The company acquires Sima and Primavera in Italy, boosting its market share to 40 percent in that country.
2001:: PackageNet is acquired and renamed Simply Packages.
2002:: Neopost acquires Ascom Hasler and launches Postage-On-Call online postage meter reset service.

Alcatel began to focus on the fast-growing telecommunications market in the early 1990s, and in 1992 the company sold off its mailroom products division in a management-led leveraged buyout (LBO) backed by merchant banker Lazard, Freres, which acquired a 51 percent stake in the company. Another financial backer of the LBO was BC Partners, which took a 15 percent share. Friden Alcatel—then in the midst of a major promotion campaign, including a sponsorship of the 1992 Olympic Games—maintained its name for the time being.

The acquisition of the Netherlands’ Hadewe in 1992 was to lead to the company’s new name. Hadewe had been formed in 1924 as a manufacturer of industrial and agricultural machinery; in 1934, Hadewe found success with its first line of stencil duplicators. In 1952, Hadewe released a folding machine, the Prestofold, and by the 1960s had become a specialist in mail and document handling equipment, releasing an inserter, the PI4. By 1986, Hadewe had developed a successor to the P14 using the latest in electronic technology, dubbing the product the Neopost System 7. After its acquisition into Friden Alcatel—which adopted the Neopost name for the entire group—Hadewe changed its name to Neopost Industrie and became a central part of the larger group’s document handling division.

Neopost set out to increase its presence on the global market for mailroom and logistics systems. In 1994, the company released its Windows-based integrated software package, WinLink. The following year, Neopost debuted Neolink, a service technician dispatch system. Backed by these and other products, Neopost began gaining speed through the mid-1990s, with sales rising from EUR 120 million at the time of its LBO to more than EUR365 million by 1997. In that year, the company’s ownership structure changed, with BC Partner’s paying the equivalent of more than EUR 100 million to buy out Lazard, Freres and raise its stake to 88 percent. The move was seen as part of a run-up to a public offering by Neopost.

Internet Focus at the Turn of the Century

With its revenues nearing EUR 400 million at the end of 1998, Neopost made its move to go public early the next year, listing directly on the Euronext Paris main board. The listing proved to be one of the year’s most successful, earning the company a spot on Forbes magazine’s 300 best small companies list.

Neopost used its public offering to help pay down debt from its LBO and to begin expanding its international presence. By then, the company had already achieved significant market share in the primary mailroom equipment markets, with a 64 percent share in France, 25 percent share in the United Kingdom, and seven percent of the U.S. market. Among the company’s first targets was Italy, which it had entered in 1998 with the acquisition of Lirma. In 2000, the company acquired two more Italian firms, Primavera and Sima, which enabled it to step up its market share in that country to 40 percent. That year, the company moved to strengthen its reach into the German-speaking markets with an agreement with Frama GmbH, based in Switzerland, to distribute Neopost’s newest digital metering system, under Frama’s brand name, to the Swiss, German, and Dutch markets.

By then, Neopost had entered a market of a different sort. In 1995, the U.S. Postal Service had laid out the guidelines for the development of the so-called “e-stamp”—that is, equipment capable of permitting the online purchase and onsite printing of stamps. Neopost joined in the race to develop secure and reliable systems capable of meeting the U.S. Postal Service’s guidelines, creating a dedicated subsidiary, based in California, named Neopost Online.

Neopost readied its first system, Simply Postage, and began regional testing in 1999. Government approval for a full-scale national rollout came later that same year. Neopost’s first system required a special, secured printer; the company was already preparing two additional desktop postage products: PC Stamp, a stand-alone desktop unit that allowed users to purchase and store electronic postage, and Postage Plus, a fully Internet-based postage purchase and printing system that allowed users to print stamps with their own printers.

While analysts expected Internet-based postage to take off in the future—with market estimates ranging from $500 million to as much as $2 billion in the United States alone—immediate reception proved lukewarm, hampered by faulty software. By 2000, two of the earliest entrants in the e-stamp race had folded. Neopost remained, however, enjoying some success with the Simply Postage system, while preparing the rollout of a more reliable PCMail application. Nonetheless, Neopost Online remained a tiny part of Neopost’s overall activity.

Neopost continued to expand its presence in the United States, which represented nearly half of the company’s total sales. In early 2001, Neopost expanded its logistics systems operations with the acquisition of its own logistics network, PackageNet, a franchise-based network of Internet-linked package pickup and drop-off points. Renamed Simply Packages by Neopost, the service enabled users to compare shipping prices among the U.S. Postal Service, United Parcel Service, Federal Express, and others, and to make online payment and print stamps, then simply drop-off the package at the nearest Simply Package drop-off point for delivery. Following the acquisition, Neopost began plans to extend the network to as many as 15,000 franchises.

The Internet remained at the center of Neopost’s U.S. development in 2001, as the company reached an agreement with popular online auction site eBay to promote the Simply Postage package among its users. That year, Neopost acquired Loop One, based in Austin, Texas, which had developed an Internet-based dispatch and tracking system. Neopost also announced the development of a self-service postage kiosk, in partnership with Grumman, which was launched in 2002.

By then, Neopost had taken a new, major step forward when it announced its acquisition of Switzerland’s Ascom Hasler, the mailroom equipment subsidiary of Ascom AG, and the number three such operation in the world. The acquisition, which cost Neopost more than EUR216 million, boosted Neopost’s global market share to 25 percent, and its U.S. presence to a 16 percent market share. Neopost remained an industry innovator as well, launching in December 2002 its updated Postage-On-Call program and service, which enabled customers to reset their postage meters through the Internet.

Principal Subsidiaries

Satas Neopost S.A.; Neopost France Neopost S.A.; Neopost Industrie; Mail Finance; Neopost Diva; Dynapost; Mailroom Holding BV (Netherlands); Neopost Industrie BV (Netherlands); Neopost BV Mailroom Holding BV (Netherlands); Neopost Inc. (United States); Neopost Online Inc. (United States); Neopost Leasing, Inc (United States); Neopost Leasing of Canada, Inc.; Neopost Holdings Ltd (United Kingdom); Neopost Ltd Neopost Holdings Ltd (United Kingdom); Neopost Finance Ltd (United Kingdom); Neopost Lirma (Italy); Neopost Sprl (Belgium); Loop One2 (United States).