Blackstone Invests $820 Million in NCR, but Will the Deal Enhance NCR’s Competitiveness?

Leading U.S.-based ATM manufacturer NCR Corp. announced Thursday that affiliates of private-equity firm The Blackstone Group L.P. will invest $820 million into the company for a 17% stake. NCR says it will use the investment to help fund a $1 billion share repurchase and speed its transformation into an integrated software and services company.

The pending deal culminates Duluth, Ga.-based NCR’s search for “strategic options” that at one point included a potential sale of the entire company to Blackstone, according to the Reuters news service. The company’s share price has slipped over the past year and it faces pressure from investors for better returns.

NCR executives said the deal with Blackstone, which will get two seats on an expanded NCR board of directors, will enable the company to both reward shareholders and invest in future growth.

“After concluding a comprehensive review of strategic alternatives, the NCR board has determined that executing our strategic plan with Blackstone’s assistance is the best way to accelerate NCR’s transformation and build long-term shareholder value,” NCR chairman and chief executive Bill Nuti said in a statement.

Noting that Blackstone is experienced in investing in technology companies, Nuti added that “this investment is a strong vote of confidence in our long-term strategy and future growth potential, and it will enable NCR to return significant cash to those shareholders who want to monetize their investment in the near term while preserving our ability to fund growth opportunities and increase shareholder value in the years ahead.”

But Moody’s Investors Service quickly downgraded NCR’s so-called “corporate family rating” a notch as well as the company’s senior unsecured notes. The securities rating agency indicated that the deal, while rewarding investors, could saddle NCR with additional debt that might hurt its future competitiveness.

“Moody’s recognizes that the company has been engaged by activist shareholders, and we think that until the company can generate consistent revenue and cash-flow growth, pressure to reward shareholders with cash remuneration will remain,” Moody’s senior vice president Gerald Granovsky said in a statement.

Moody’s noted that Blackstone’s investment, through convertible preferred stock, has “strong debt-like characteristics” and that the buy-back of common stock will be partially funded by borrowings on NCR’s revolving credit facility. “Additional credit risk could arise, following debt issuances, from NCR’s diminished financial flexibility, potentially limiting the company’s ability to pursue prudent strategic opportunities and to defend its market share against emerging competition,” the statement says.

NCR in recent years has attempted to move beyond its ATM and bank-hardware base into software-based payments and business services. To do that, it has acquired such companies as Digital Insight in 2013, Retalix in 2012, and Radiant Systems in 2011. Moody’s said NCR stills has “elevated debt balances” from borrowings to fund those acquisitions.

On the positive side, Moody’s noted that “NCR’s management has broadened the scope and improved the firm’s competitiveness by acquiring and expanding into higher growth, higher margin product lines that enhance its core hardware portfolio.” Moody’s changed NCR’s ratings outlook from negative to stable, meaning the agency does not anticipate any further downgrades in the near term.

An NCR spokesperson did not respond to a Digital Transactions News request for comment on the Moody’s actions.