David Block on integrating the two parties’ grading operations and brands.

The past week has been a busy one for potential acquisitions in the diamond-grading sector. On Thursday, Sarine Technologies announced it was planning to acquire a majority stake in New York-based Gem Certification & Assurance Lab (GCAL). The following day, the International Gemological Institute (IGI) confirmed its parent company, China’s Fosun International, was seeking buyers for the Belgian laboratory.

The Sarine deal could have wide implications for the Israel-based company’s US capabilities, though so far it is only a memorandum of understanding (MoU) and not a final agreement. David Block, its CEO, answered Rapaport News’ questions about the proposed takeover.

What is the expected timeline of this transaction?

We have signed an MoU with basically all the agreements of everything that has been discussed [with GCAL] over the last few months. As with any acquisition of a company, we need to go in to do an audit of the financials and due diligence and so on and so forth, which I expect to take a few months. [After that process,] an agreement is fully signed. It’s not that we intend waiting until the end to start moving forward. We feel very comfortable to start moving forward on the commercial side, even though we haven’t completed the entire process.

What do you mean by things moving forward even before then?

There are two levels that you can look at this. There’s the acquisition, and there’s how we start implementing and leveraging the capabilities of the two companies, how we start integrating our technology within GCAL. The idea is not necessarily just to put technology in the lab, but rather how do we start using our grading technology infrastructure, the e-Grading [Sarine’s automated grading, based on artificial intelligence (AI)], to enable grading that could be done at the source right before the diamonds reach the US or the retailer. The idea is to use the synergies of both companies’ capabilities: [GCAL’s] presence in the US and acceptance by the US market, together with our technology capabilities, and leverage both of them together. We will see the collaboration regardless of the acquisition itself.

David Block. (Sarine Technologies)

It’s fairly rare for a company to sign an MoU saying that there’s going to be an acquisition before it’s final. Why did you choose to do it like this?

Once we start doing due diligence [with] a large number of people involved, it could leak out. It could be a problem as a public company that we didn’t inform the public that we are in such a process. And because we’ve discussed and agreed upon all the business terms, we felt that it’s an advanced enough stage to be able to become public and not to have that risk as we complete the due diligence.

When did the discussions begin?

As with most parties within the industry, we’ve been discussing different levels of cooperation with many different parties over the years. There have been rumors in the past about us buying other grading labs, which I won’t comment on. We’ve had a lot of discussions over the years with GCAL. Over the past months, we’ve had much more intensive discussions until we came to a mutual conclusion that there’s a lot of synergy between the two companies. And we decided to take one step forward.

Your press release said the terms of the deal are to remain confidential “pending the closing.”

At this point in time, we don’t need to [disclose a deal value] from a public-company perspective. And to be very honest, we would prefer not to if we don’t have to. Whatever we will need to disclose we will disclose.

What are Sarine’s capabilities in the US at the moment? By roughly what percentage does this increase your capacity in the US?

Our activities in the US really only started seriously at the beginning of last year. Before that, we had activities over there, but we weren’t really too focused. We were more focused on Asia and Europe. The discussions with regard to this [deal] ramped up along with our involvement in the US market, [i.e.] being more present there and discussing with clients. So this should be quite a significant jump in the scope of our business in the US.

How many employees does Sarine have in the US?

Less than 10 before the deal. After the deal, we will have all GCAL employees, as well. I don’t want to go into the numbers, but it’s a couple of tens of employees. Less than 100.

One of the things that GCAL describes as being distinctive about the lab is that it gives customers a guarantee with its grading certificates. How will integration of that work?

We totally intend to continue that. We believe that technology enables that to be even stronger due to the fact that the technology is a lot more repeatable. So we will continue to stand behind that GCAL promise and guarantee on the diamond certification, as well as keeping the ISO [International Organization for Standardization] standard.

Is that specifically for GCAL certificates, or will that be implemented across Sarine?

I don’t know at this point in time, but definitely under the GCAL-Sarine brand, they will be maintained. Will we expand that to the general Sarine certificates? Could be. That’s something that definitely we could leverage for the rest of the brand as well.

If you’re a customer that usually uses GCAL in the US, will you still work with GCAL and get a GCAL-branded certificate, or will customers be dealing with Sarine?

First of all, the GCAL team [and] leadership [are] carrying on with us, and we are not making any dramatic changes over there. The product lines and services that GCAL provides will continue going forward. There will be a lot of improvements. There will be a lot of added value that we can provide due to the integration of our different technologies into the operations. The current services and products that the clients of GCAL have learned to expect over the years will continue, and we’ll continue adding services to that, listening to what the clients need, and adapting accordingly.

So the certificate will still say GCAL on it?

Most likely. I don’t know exactly what it will say, but there’s definitely going to be an integration of GCAL’s brand together with Sarine’s brand. Is it a house of brands or a brand of houses? I don’t know. We’re not yet decided on that, but it’s definitely going to be [the case that] GCAL will continue to be present within the branding.

Do you have any plans yet for how 8X — GCAL’s highest cut grade — will be implemented across Sarine?

8X will continue. We like the product and think it has a lot of value. We don’t expect to make any dramatic changes. We just want to add on to [GCAL’s products], rather than changing it totally.

Main image: Diamond scanning on a Sarine machine. (Sarine Technologies)