Now that it has snapped up Verifone, the humbled giant of card payment technology, at what it says is a bargain price, Gores Technology Group says it plans to restore the terminal manufacturer to its former glory, making sure that it develops and introduces products more quickly.
Verifone executives expressed some relief at the deal, which would make the Santa Clara, Calif., business a subsidiary of Gores (pronounced Gor-EZ), a private buyout firm in Los Angeles that has acquired more than 30 technology companies since it opened in 1992. Verifone has been a subsidiary of Hewlett-Packard Inc. since 1997, but the marriage has grown increasingly strained.
A lot of us at Verifone are delighted by the change, and the opportunities to run faster and looser, said Pierre Francois Catte, general manager of Verifone, in a telephone interview Friday. He and other executives acknowledged that the fit was not good with H-P.
At the time Hewlett-Packard acquired Verifone, it was to strengthen H-Ps place in the Internet, Mr. Catte said. As it turned out, the migration of e-commerce is taking place, but not as fast as expected.
The emerging problem between Verifone and Hewlett-Packard was not friction, it was slow disconnection, he said.
There were many suitors for Verifone before Gores got the deal, and Verifone executives have been in expectation mode about what our future would be, Mr. Catte said. Gores will help us make fast decisions, help us focus on key markets, try to educate us, and create a sense of urgency that you find in a startup, he said.
When Hewlett-Packard bought Verifone, it had 3,700 employees, and today it has 1,700, Mr. Catte said. At the time of the sale, Verifone had been investing in Internet space and neglecting its traditional POS business and software, he said. What H-P did was inject resources and people. They restructured the company.
Verifone, which was a public company when Hewlett-Packard Co. bought it in 1997 for $1.2 billion, manufactures point of sale terminals and systems for real-world and electronic commerce, and its marriage with H-P, whose computers ran much of Verifones credit card verification software at banks, seemed like a natural.
The companies were developing complementary technology in smart cards, and Verifones new payment software products for Internet merchants were tantalizing to the hardware maker.
In its announcement of the deal last Thursday, Hewlett-Packard said it had agreed to sell Verifone for significantly less than it paid for it, according to people familiar with the deal to focus on core competencies.
Mr. Catte said that under its new owner, We are to redirect some of our resources into more traditional payment space. We didnt abandon the Internet space, but we will review and shrink the commitment to it. Ninety-five percent of its revenues come from the traditional point of sale business, he said.
To its credit, Hewlett-Packard has spent a lot of money to make Verifone competitive, Mr. Catte said. We have probably largest R&D budget in the industry.
Then again, 10 years ago Verifone had 100% of the market, he said. We have lost customers to Hypercom [Corp.], but Hypercom is now losing business to us. This is a dogfight industry. It is very competitive.
There will be no layoffs, Mr. Catte said. We may have to rehire a few people.
Verifone executives say there are plenty of examples of Internet payments businesses that betted heavily on the Web taking over e-commerce.
You only need to look at CyberCash to see where Internet payment has ended up, said Stuart Taylor, director of emerging markets and business development at Verifone. William Melton, the founder of Verifone, went on to start CyberCash, which struggled to find its voice and was recently sold to Verisign Inc.
More recently, there has been a recognition that the lights are being kept on by the traditional payment business that Verifone dominates, Mr. Taylor said.
Hewlett-Packard doesnt need to own a payment company, particularly when the bulk of our revenues are coming from traditional Verifone business, he said. Hewlett-Packards stock closed at $26.02 on Friday, down 56 cents.
Mr. Melton seized on an early Visa initiative to promote the development of inexpensive card authorization terminals for the point of sale. Early on, Verifone knocked several earlier entrants out of the business.
Hatim Tyabji, Mr. Meltons successor at the helm, joined Verifone in 1986 when it had revenue of $31 million. He orchestrated an initial public offering in 1990, and led the 1995 acquisition of Enterprise Integration Technologies, a pioneering Internet software company that became the nucleus of Verifones Internet commerce group.
By 1998, when Mr. Tyabji retired a year after the sale to Hewlett-Packard revenue was up to around $600 million.
Mr. Tyabji picked Robin Abrams, who had joined the company from Apple Computer a year earlier, as his successor, but her stint as president and chief executive officer was short. In early 1999, when several top Verifone executives defected (many to top rival Hypercom), she announced she was leaving for 3Com Corp. Ms. Abrams has held a series of positions since then. Mr. Catte is now the top executive at Verifone.
This was a one-time startup that became a multihundred million dollar company, a successful, nimble business that got acquired by a 900-pound gorilla that purchased them because somehow they believed that the future of all e-payment was on the Internet, said Doug Bergeron, group president of Gores Technology. But most transactions are still done by consumers going to a merchant.
He vowed that his firm which includes among its acquisitions The Learning (from Mattel Inc.) and Graftek Inc. (from Unisys Corp.) would apply necessary lubricant to Verifone.
We will WD-40 a lot of gears in that company, Mr. Bergeron said. We will add some velocity and some strategic focus, and will be quicker to market, quicker to develop products.
Though the Internet has not grown as quickly as Hewlett-Packard envisioned in the mid-1990s, Mr. Bergeron said that Verifone still occupies a market-dominating position, with 10 million installed terminals, a 40% market share in the United States, and a 25% market share internationally.
He said he expects Verifones revenues this year to be in the $400 million range. When a $50 billion company buys one with $300-$400 million in revenue, it has a hard time getting any board attention, he said. We will turn it back into Verifone Inc., return them to their start-up roots.
One advantage of buying up a company that operated as a division of Hewlett Packard is the parent companys reputation for quality controls, he said. The products are higher quality than ever, and they have a tremendous pipeline of products, but they are just too darn slow.
Another quality Verifone picked up during its years with Hewlett-Packard was an emphasis on strategic relationships, Mr. Bergeron said. He pointed to a deal with Telechek to produce check-imaging terminals. A Verifone spokeswoman said more than 100,000 of those terminals had been shipped.
The Verifone deal is the second major terminal manufacturer transaction in as many months. Last month Ingenico SA of Puteaux Cedex, France, acquired IVI Checkmate Corp. of Atlanta for $55.3 million.
L. Barry Thomson, president and CEO of IVI Checkmate, said its purchases is completely different from the Verifone deal.
In the case of IVI Checkmate and Ingenico, it was a strategic decision to fulfill [Ingenicos] strategic initiative to take a significant position in the North American market, he said. For Hewlett-Packard, it was a divestiture. I never understood why Hewlett-Packard acquired Verifone in the first place
Mr. Thomson took issue with Mr. Bergerons assertion that Verifone is the worlds largest terminal manufacturer. When you merge IVI Checkmate and Ingenico, I believe the company will be the largest in the world. Verifone does not publish their results.
Paul Martaus, the president of Martaus & Associates, a payments processing consultancy in Mountainhome, Ark., said that freeing Verifone from the pressure of quarterly earnings pressure may help it prosper. They lived and died by quarterly results. They dont have to do that anymore.
He said he anticipates one of two scenarios would play out at Verifone if Gores takes charge. One: they will stick their heads in the door and say, Here is a bunch of folks who havent had an opportunity to fulfill their destiny, because they had a parent without foresight, he said. Or they will say, This is a team that didnt get the job done last time. What do we need them for?
Steven V. Bacastow, a partner with Atlanta Collective Dynamics LLC, a payments systems consulting firm, said he never saw a good fit between Verifone and Hewlett-Packard.
It always seemed that it was a one-off for Hewlett-Packard to be in this business, he said. I didnt see how point of sale systems would ever be part of HPs business.
There is only one potential cloud on Verifones future, he said. Without Hatim Tyabji, we will have to see how the company survives as an entrepreneurial company.
