Chief executive officer Richardson M. Roberts remembers a time 10 years ago when PMT Services Inc.'s telemarketing operation had to shut down because a rainstorm had shorted out the phone lines.
"Not only was I competing for business in a marketplace which was difficult to identify and pursue," Mr. Roberts recalled, "but I had to consider whether or not 'acts of God' would continue to be things that we would be matched up against."
Since 1990, PMT has matched wits with the most competitive merchant- acquirers in the credit card industry. And the company has emerged at the head of the pack in its part of the business.
PMT is one of the nation's largest independent sales organizations, or ISOs. It gives about 120,000 small businesses access to the MasterCard and Visa networks through point of sale equipment and services.
Though lacking the stature of First Data Corp. and other megaprocessors, the company towers over most other ISOs. In fact, it is part of an emerging breed known as "super ISOs"-companies that bring the advantages of large scale to small merchants generally shunned by the giants.
"It has always just been a natural idea of ours to go after a less competitive marketplace," Mr. Roberts said. Generally, he says, his competitors aren't nationwide behemoths but small banks with close ties to local merchants.
PMT, based in Nashville, has grown chiefly through the acquisition of other ISOs. Starting with 10,000 merchants, its base has jumped more than times in the past seven years.
The growth has been especially noticeable in the three years since the company's initial public offering of stock.
"They have used IPO funding to acquire every portfolio they can get their hands on," said Paul Martaus, president, Martaus and Associates, Clearwater, Fla.
The company concentrates on merchants that handle as few as one or two card transactions a day.
It bundles its transaction processing services with point of sale terminals, and provides access to a wide array of settlement banks and third-party processors.
Larger merchants, Mr. Roberts continued, typically want a more sophisticated level of reporting-broken down by type or store or chain-that the big processors can provide.
"It has always just been a natural idea of ours to go after a less competitive marketplace where there are more merchants and more profitability per transaction," he added.
Robert E. Hyer Jr., a director at Smith Barney, said, "Rich Roberts and PMT are servicing a sector of the market that is below the radar screen of the bigger acquirers."
PMT, Mr. Hyer said, seeks "merchants who are doing less than $100,000 a year on plastic and typically two or three transactions a day. It is not efficient for First Data or First USA Paymentech to call on these merchants."
Every time a card is swiped through one of its terminals, PMT makes 54 cents. PMT runs between 125 million and 135 million transactions a month, with volume totaling $14 billion a year.
But PMT must face Wall Street's demands that it continue the breakneck pace of its acquisitions in a rapidly consolidating industry.
And it must weather the free-fall afflicting transaction processing stocks since the beginning of the year. The drop-triggered by concerns of rising credit problems and declining business volume-contrasts sharply with the boom times of 1996. Amid a wave of public offerings, the stock prices of processing companies rose to 50 to 70 times earnings. Credit card issuers, by contrast, have been posting multiples of 15 to 20.
PMT's own dive in stock price-from a high near $30 to its current $11- has caused speculation that the company may be ripe for a takeover. Since PMT uses stock to buy other companies, the devaluation has hurt that part of its strategy. (Its price-earnings multiple remains high at 32, but has fallen from a lofty 50 or more.)
Analysts and executives like to point to PMT's balance sheet as proof of the company's successes.
With market capitalization of about $460 million, almost no debt and $100 million in cash, PMT has money to spend.
Among merchant-acquiring companies, PMT jumped from No. 17 to No. 12 nationally in 1996, according to The Nilson Report, Oxnard, Calif. It remains solidly in the top five for nonbank acquirers, in a company with First Data Corp., National Data Corp., First USA Paymentech, and Nova Information Systems.
PMT contracts its processing functions to First Data, Paymentech, National Processing Inc., and First National Bank of Omaha, among others.
Mr. Roberts,39, founded PMT Services Inc. with Gregory S. Daily, 37, who is now president, in 1984. They saw success locked in the recurring revenues from credit card purchases.
Mr. Roberts met Mr. Daily in 1982 when they both worked for Comdata Holdings Corp., the Brentwood, Tenn.-based fleet management company.
After a year and a half, the pair branched out on their own and started a company that helped truckers secure money transfers while they were on the road. Rather than focus on large fleets as Comdata does, they focused on smaller ones, with fewer than five trucks.
Mr. Roberts and Mr. Daily then worked together at Concord EFS, the Memphis independent service organization, where they learned the credit card authorization and capture process.
"Greg and I saw the power of using telemarketing and commissioned salespeople to build a stable base of recurring revenues," Mr. Roberts said. "That was the genesis of PMT Services."
Today PMT is one of Concord's major competitors.
In 1986, PMT became an independent service organization for Rocky Mountain Bankcard, a bank credit card company later acquired by First Bank System Inc.
Crucial to the company's growth, between 1987 and 1990, PMT received $3.5 million in venture capital from Massey Burch of Nashville. It was earmarked for PMT to build its infrastructure.
Around the same time, PMT developed a processing relationship with First National Bank of Omaha. Today, First National handles 50,000 of PMT's accounts and is one of its chief sponsoring bank into the Visa and MasterCard networks.
By 1990, PMT decided it needed to make a significant acquisition to keep on growing, and that is when it received $2 million from Sirrom Capital.
Sirrom's president and chief executive officer, George M. Miller, overheard Mr. Roberts complaining at a cocktail party that he could not get money from a bank to make acquisitions.
"(Roberts) had just had his first profitable year, after about five years of losses," Mr. Miller said.
"Banks don't want to lend to (these businesses)," Mr. Miller added. "There is a need for companies like ours to lend to (companies like) PMT, which was doubling its business every year."
With the money from Sirrom, PMT bought its first portfolio-half of Boston-based South Street Bank's merchants, brought to them by an independent service organization. Nabanco had purchased the other half, which were merchants signed up by the bank.
PMT had a public offering that was in the vanguard of other merchant acquirers and processors by at least a year. In August 1994, it put up 3.2 million shares, priced at eight dollars a share.
Mr. Roberts is fond of boasting the company has made 30 acquisitions since 1993.
"Twenty-four of them since our IPO, and five of them within the last 45 days," he said. "PMT has added 65,000 accounts over the last year."
Acquisitions in recent months include independent service organizations Retail Payment System Inc., Fairway Marketing Group Inc., Bancard Systems Inc., and BankCard America Inc.
PMT seeks independent sales organizations with merchant portfolios of 2,000 to 10,000, but with annual charge volumes as high as $400 million.
Even though the pace of its acquisitions has been breathless, Wall Street demands more, and analysts question whether the demands are achievable.
"Investors may have been factoring in even more acquisitions than was realistic," said Richard Weingarten, principal, Montgomery Securities.
The problem of reality is echoed by consultants as well.
"They have to face it," said Mr. Martaus. "The portfolios they are chasing are a finite resource. They have to pay more and more for less and less."
Mr. Daily, PMT's president, disagreed.
"We do feel like we have and will do enough deals in the future to satisfy Wall Street. I am not concerned about it." Mr. Daily said. "Their bet is against me, that I can't do it, and I am out to prove them wrong."
But PMT's successes have sparked rumors that the company, because it is public, might be for sale.
"PMT could be bought, but it would be a matter of someone being able to buy them at a price where it would be additive to earnings," Mr. Weingarten said.
The question marks are, he added: "What will happen with the acquisition environment, since we've gotten a lot more public companies in there? Will prices for acquisitions go up? With slowing industrywide charge volume growth, will that have an effect?"
Both consultants and analysts agree PMT needs to expand its range of services and continue making acquisitions to remain attractive to investors. Diversification may mean doing its own processing rather than relying on other companies.
PMT signaled clearly to investors that it would begin to diversify with its acquisition of CVE Corp. last week. The pooling of interest with the Omaha, Neb. ISO brings 4,000 accounts and the capacity to do check authorization and verification.
"We have delivered, and we are still very comfortable in the niche that we are competing in," Mr. Roberts said. "If we continue telling our story, ultimately the facts are going to present that we have a significant opportunity from the bottom up, similar to what First Financial Management Corp. did from the top down. We've just got a reverse strategy. But it takes a lot longer to find those small merchants."
