BlackBerry To Carve-Out Its IoT Business Via IPO In 1H24

Deal Overview

On October 4, 2023, BlackBerry Limited (NYSE: BB, $3.61, Market Capitalization: $2.1 billion), a leading provider of security software and services to enterprises and governments, provided an update regarding the review of its portfolio of businesses (named as “Project imperium”), which commenced on 5/1. Based on the input from the current process and with the support of management, the Company determined that separating the Internet of Things (IoT) and Cybersecurity business units into two independently operated entities is the optimal strategic direction for the Company. BlackBerry plans to carve-out its IoT business via an IPO into a separate publicly traded company, with a launch targeted in the first half of the next fiscal year (1H24). IoT business consists of BlackBerry Technology Solutions (BTS) and BlackBerry IVY, a market leader for high-performance, safety-critical foundational software in automotive and other verticals. On the other hand, BlackBerry (Parent) will continue to run Cybersecurity, Licensing, and other businesses. Although more information regarding the IPO of IoT business is not available yet, the Company will host an investor briefing regarding the Project Imperium update on 10/17 (Tuesday) at 1:00 pm ET.

Deal Rationale

It is worth noting that BlackBerry stock has remained under pressure for some time (since the last 2 years, the stock has underperformed ~64% compared to NASDAQ
NDAQ
100). In response to this underperformance, BlackBerry’s Board of Directors initiated a review of its portfolio of businesses (named “Project Imperium”) on 5/1, and the Board considered various strategic alternatives to enhance shareholder value, which included the possible separation of one or more of BlackBerry’s businesses. Morgan Stanley
MS
and Perella Weinberg Partners were financial advisors to BlackBerry for the strategic review. Noteworthy to mention, Reuters reported that private equity firm Veritas Capital had offered to buy the entire BlackBerry on 8/25; however, details of the offer were not made available.

BlackBerry Limited, once synonymous with smartphones, now focuses on software and services for Cybersecurity, endpoint management, and secure communications. The Company planned to penetrate the mass market for its Cybersecurity solutions while continuing to make inroads into the lucrative IoT opportunity by forming strategic partnerships with auto manufacturers. However, BlackBerry has faced several roadblocks that prevented the Company from executing the plan perfectly. Nevertheless, BlackBerry operates in the IoT and Cybersecurity, which are high-growth markets, with IoT expected to have a Total Addressable Market (TAM) of $3.3 trillion by 2030 and Cybersecurity expected to reach $2 trillion by 2025. Furthermore, McKinsey noted that the convergence of these two markets (IoT and Cybersecurity) may increase IoT’s market size by as much as 50%. Notably, BlackBerry’s IoT business has recently become its core growth driver. Ultimately, BlackBerry believes that a separately traded IoT subsidiary will enable shareholders to more clearly evaluate the performance and future potential of BlackBerry’s principal businesses on a standalone basis while allowing each business to pursue its own distinct strategy and capital allocation policy. The separation creates two companies well positioned for the long term, each with strong management teams with longstanding customer relationships and proven track records, leading portfolios of advanced technologies delivering higher revenue growth and margin expansion.

Company Description

BlackBerry Limited (Parent)

Based in Waterloo, Ontario, BlackBerry provides intelligent security software and services to enterprises and governments worldwide. Incorporated in 1984, the Company was formerly known as Research In Motion Limited and changed its name to BlackBerry Limited in July 2013. The Company leverages AI and machine learning to deliver innovative solutions in Cybersecurity, safety, and data privacy solutions. It is a leader in endpoint security, endpoint management, encryption, and embedded systems. BlackBerry secures more than 500 million endpoints, including over 235 million vehicles. The Company has multiple products and services from which it derives revenue, structured in three businesses: Cybersecurity, Internet of Things (IoT), Licensing and others. The Cybersecurity business consists of BlackBerry Spark®, BlackBerry® SecuSUITE® and BlackBerry® AtHoc®. Licensing and Other consists primarily of the Company’s patent licensing business. On May 11, 2023, the Company completed the previously announced patent sale with Malikie Innovations Limited and sold certain non-core patent assets for $170 million in cash on closing, an additional $30 million in cash by no later than the third anniversary of closing and potential future royalties in the aggregate amount of up to $700 million. In FY23, the Company reported a total revenue of $656 million.

Internet of Things (IoT) Business (Carve-Out)

The IoT business comprises BlackBerry Technology Solutions (BTS) and BlackBerry IVY. The principal component of BTS is BlackBerry QNX, a global provider of real-time operating systems, hypervisors, middleware, development tools, and professional services for connected embedded systems in the automotive, medical, industrial automation and other markets. In addition to BlackBerry QNX, BTS includes BlackBerry Certicom® cryptography, key management products, and the BlackBerry Radar® asset monitoring solution. BlackBerry Radar is a family of asset monitoring and telematics solutions for the transportation and logistics industry. Moreover, the IoT business has partnered with Amazon Web Services, Inc. (AWS) to develop and market BlackBerry IVY, an intelligent vehicle data platform leveraging BlackBerry QNX’s automotive capabilities. BlackBerry IVY allows automakers to access a vehicle’s sensor data safely, normalize it, and apply machine learning at the edge to generate and share predictive insights and inferences. The IoT business reported a total revenue of $206 million in FY23.