Verifone Unloads Software to Focus on Terminals

When Gores Technology Group, a Los Angeles acquisition specialist, bought Verifone Inc. from Hewlett-Packard Co. in July, Verifone’s new president, Doug Bergeron, promised a leaner, meaner company that would focus on terminal manufacturing and dump the rest of its operations.

Now he is apparently trying to make good on that promise: Verifone announced Tuesday that it had sold its ePS line of software, which is used by about 35 large merchants to manage e-commerce payment infrastructure, for $3.3 million to Trintech, a payment software vendor with dual headquarters in San Mateo, Calif., and Dublin.

Also on Tuesday, Verifone said that it had turned profitable. Cuts in research and development, combined with the sale of the company’s nonterminal-based payment software to Trintech, moved Verifone into the black, according to a report that covered the time between July 20, when Gores closed on its purchase, and Oct. 31.

Revenues for the period exceeded $100 million and were strong in all regions, particularly in the United States, where the company received some new orders. Earnings from operations, excluding interest, taxes, depreciation, and amortization, topped 10%.

Verifone’s statement pointed to substantial shipments to such companies as Ahold, Citgo, Concord EFS, Global Payments Inc., KFC, National Processing Co., and TeleCheck. Because Gores is privately held, it is not required to make a full financial-results release.

By comparison, Verifone’s closest competitor in size, Hypercom Inc. of Phoenix, posted a net loss of $21.4 million for the nine months that ended Sept. 30, but it says it expects to be profitable next year.

“Part of our back-to-business buzz is to double down on areas were we are successful,” Mr. Bergeron said in an interview last month. “Frankly, many of our competitors could learn a few lessons from that. Get back to what you are good at.”

What Verifone is good at, according to Mr. Bergeron, is manufacturing high-performance terminals at low prices. In September it announced several new terminals in its Varix EMV-compliant line. The new ones are cheaper than its other high-end terminals.

“The market is so price-competitive,” a spokeswoman for the company said. “If you give merchants the ability to offer gift cards,” and add more money to prepaid telephone cards, “you have another hook into the merchant, and it will generate new sources of transactions for acquirers.”

Mr. Bergeron says Verifone will also look into acquisitions of smaller terminal manufacturers. “All the demographics point to consolidation. We are putting a hand up and saying we are well capitalized. We are a likely candidate for a consolidation wave.”

The deal with Trintech eliminated a tangential division and returned the company to its core business, he said. “The enterprise application space is completely and wholly uncore to our smart appliance biz. Enterprise application is more the venues of the Trintechs and Oasises of the world.” The latter reference was to Oasis Technology Ltd. of Toronto, a payment infrastructure vendor.

Trintech — which, like Oasis, facilitates payments in physical stores, through Web sites, and over wireless devices — has added the acquisitions to its own product base, and it will offer its own PayWare software to former Verifone ePS clients.

Verifone has also agreed to join Trintech’s PayWare Partner Program as a reseller of PayWare products.

Trintech’s chairman, Cyril P. McGuire, said that it had long had its eye on Verifone’s software line, and that the purchase was made possible by its strong cash position. Trintech reported a cash balance of $82 million at the end of the second quarter.

“The purchasing power of that cash is greater than it was in the past,” and Trintech may be in the market for more acquisitions “where appropriate,” he said.

The Verifone software purchase gives Trintech a “blue-chip” customer base as well as a product line that complements Trintech’s payment products, Mr. McGuire said.

“The increased exposure to a customer base all over world will give us increased market share,” he said. “It is an extremely good value to Trintech,” and it puts the company in a good position to become the industry’s leading provider of payment infrastructure.

John McGuire, Cyril’s brother and Trintech’s chief executive officer, said there are “excellent synergies between our companies’ payment technologies, and this acquisition will deliver substantial benefits” to the software’s customers, which include all NikeTown stores and the retailer T.J. Maxx. “With the acquisition of ePS, we are reinforcing our leadership position in the consolidating electronic payment sector.”

Kevin Ritschel, Verifone’s director of business development, who handled the Trintech sale, said host-based, or enterprise application payment technology, which Verifone began offering in 1996, was one of the things that persuaded Hewlett-Packard to purchase the manufacturer in 1997.

“It was what Hewlett-Packard bought us for,” he said. “If a large retailer wanted to control all their terminals in a number of places and switch transactions to different processors, we had a suite of software called ePS to do that.”

As part of the deal, Verifone also sold Trintech its V-suite Internet payment software for companies that want to take customer payments over the Web.

“All this software runs on big servers that are meant to dish out transactions through a wide network,” Mr. Ritschel said. “That is a whole different world, different marketing, and heavy research and development costs. We want to work on appliances and the software that resides on appliances.”

The sale was more like a technology licensing deal than a sale of a business, in which the new owner often gets personnel and offices, Mr. Ritschel said. No Verifone personnel will move to Trintech as a result of the sale, and Verifone will still offer the products through a co-marketing deal with Trintech.

“We got into this business in the first place because some customers have A to Z requirements,” he said. “There are still powerful sales arguments for some customers.”

Mr. Ritschel predicted that Verifone will make more marketing agreements with Trintech covering other products.