VeriFone Systems Inc. took another step Nov. 14 in its quest to break free of the constraints of the aging plastic card.
The San Jose, Calif.-based payment-terminal maker has agreed to buy Point, a Stockholm-based provider of payment and gateway services.
Though the deal adds 475,000 new merchant contracts, VeriFone says the move is as much about boosting its technology as it is about gaining more 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 chief executive, said in during a Nov. 14 conference call.
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. It expects to close the deal by the end of the year. VeriFone also would retire about $234 million in Point's debt when the deal closes.
Point provides technology for the point of sale and processes for e-commerce payments. Many of its services generate recurring subscription revenue, VeriFone said.
This acquisition builds on VeriFone's purchase earlier this month of Global Bay Mobile Technologies
"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 wants its services business to generate about 30% of its total revenue by Oct. 31, 2012, the end of its fiscal year, Bergeron said. It projects that the services business will generate half of its total revenue by the end of fiscal 2015. It accounted for about 22% of total revenue in the last quarter of this fiscal year, VeriFone says.
"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 enables VeriFone to streamline and accelerate its delivery of next-generation payment services to the point of sale. Especially in Europe, where consumers still primarily use 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.
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