VeriFone Systems Inc. took another step Monday in its quest to break free of the constraints of the aging plastic card.
The San Jose, Calif., payment terminal company has agreed to buy Point, a Stockholm company that provides payment and gateway services. Though the deal adds 475,000 new merchant contracts, VeriFone says this move is as much about boosting its technology as boosting its customer relationships.
"All of the innovation that is taking place at the point of sale is really begging for an answer here," Douglas G. Bergeron, VeriFone's chief executive, said in on a conference call Monday.
People "want to pay in any number of ways, whether it's traditional credit, signature debit, PIN debit, through a mobile phone, a contactless-chip card or even a bar-code scanner," he said. "And retailers want to embrace them."
VeriFone said it is paying about $825 million to purchase Point from Nordic Capital Fund V. The deal is expected to close by the end of the year. VeriFone would also retire about $234 million in Point's debt when the deal closes.
Point handles technology at the point of sale and processing for e-commerce payments, as well as other services. VeriFone highlighted many of these services generate recurring subscription revenue.
This acquisition builds on VeriFone's November purchase of Global Bay Mobile Technologies, a private mobile retail software provider; and its August purchase of part of Hypercom Corp., which has a strong European terminal business.
"Having a business that has more balance and better visibility is a goal that VeriFone has been pursuing over the last few years," says Gil B. Luria, an analyst with Wedbush Securities.
VeriFone is aiming for its services business to make up about 30% of its total revenue by Oct. 31, 2012, the end of its fiscal year, Bergeron said. It projects that half of its total revenue will be generated by services by the end of fiscal 2015.
In the last quarter of this year, VeriFone says its services business accounted for about 22% of total revenue.
"That is really the crux of the acquisition for them," Luria says. "The real goal is to buy more services business, which happens to be recurring and in this case happens to be higher-margin."
The deal also allows VeriFone to streamline and accelerate its delivery of next-generation payment services to the point of sale. Especially in Europe, which still primarily uses cash, there is a lot of room to grow, says Andrew Jeffrey, an analyst with SunTrust Robinson Humphrey Inc.
"As [things] open up in those markets … the need to speed payment systems increases," he says.
The Point acquisition will help VeriFone adapt to changes in the payments industry, Jeffrey says.