DSS sells brand protection unit to Proof Authentication for $5m

Document Security Systems has trimmed down its operations with the sale of its DSS Digital subsidiary to privately-held startup Proof Authentication for $5m.

The deal – which closed on May 7 – consisted of $3m in cash, $1.5m in potential earn-out payments if performance targets are met in the coming years, and $500,000 in trade credit or license fee rebates.

Rochester, New York-headquartered DSS Digital is responsible for DSS' anti-counterfeit, authentication, and brand protection technologies, including its main asset AuthentiGuard. In 2018, the digital subsidiary had revenues of around $1.5m, and DSS was projected annual revenue growth of 17% for the following three years.

AuthentiGuard is a smartphone-driven application that integrates traditional printed optical deterrent technologies with digital data security for anti-counterfeit, authentication and diversion protection.

Under the terms of the agreement, DSS will retain and sell to certain customers under a non-exclusive license granted by Proof that will last for three years unless renewed.

It will also use the anti-counterfeiting technology on consumer packaging for authentication and consumer engagement purposes in its Premier Packaging division, which accounts for the bulk of DSS' revenues.

"Consumers are more aware now than at any time in our history about the prevalence of counterfeit products in the market," said Proof's chief executive Dan McKinnon.

"They are clamouring for a way to ensure the products they are buying are real. This acquisition allows us to build on DSS’ innovations and further drive increased value to our client brands and their consumers around the globe."

The deal will allow DSS to focus on its other businesses, including blockchain security, direct marketing, healthcare, consumer packaging, real estate, renewable energy, and securitised digital assets, said the company in a statement.

“While our digital group has been a great business for DSS over the years, we have moved in a different direction," said DSS' chief executive Frank Heuszel. The company also divested a plastics division last year.

"We set out on a mission to revive DSS and the sale of our legacy digital group is another major milestone in our transformation that will enable us to focus on new, higher-return opportunities to grow shareholder value," he added.