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Citing a weak economic climate and business setbacks, independent sales organization Pipeline Data Inc. and its affiliates on Monday filed for Chapter 11 protection in U.S. Bankruptcy Court in Wilmington, Del. Pipeline hopes to sell itself as a going concern with the help of an investment bank.
Alpharetta, Ga.-based Pipeline serves about 15,000 small and mid-sized card-present and e-commerce merchants. Its bankruptcy petition values its assets at $1 million to $10 million, but puts its debts in the $50-million-to-$100 million range. The petition lists the largest unsecured creditor as merchant processor Cynergy Data LLC, which Pipeline owes $1.62 million for processing services.
Pipeline’s majority owner is private-equity firm Comvest Partners, which in 2009 bought the assets of the bankrupt Cynergy Data. Pipeline’s petition lists a Comvest affiliate as its second-largest unsecured creditor, to which it owes $520,825.
Pipeline, which has 36 employees, provides its services through a direct sales force, agent banks and other financial institutions, independent agents, and trade associations. A wholly owned subsidiary, Brasher Falls, N.Y.-based Northern Merchant Services Inc., handles most of the company’s internal sales and agent relations. The company’s trade names include SecurePay, a gateway service, and Aircharge and CardAccept.
Pipeline’s lawyer did not return a Digital Transactions News call for comment, and an executive declined to talk on the record. But a document filed with the petition outlines the company’s financial troubles. Back in 2006, Pipeline sold $37 million in four-year convertible notes and warrants to institutional investors to refinance debt and fund acquisitions. By late 2008, the company was experiencing “financial difficulties,” though the document doesn’t say exactly why. Along with many other businesses, however, merchant processors at the time got hurt during those economically turbulent times.
In February 2009, a Comvest unit and two individual investors bought $15 million in Pipeline convertible stock and restructured the 2006 refinancing, thereby taking control of the company. But if things improved, they didn’t last for long.
“Macroeconomic conditions continued to negatively affect the company and the industry as a whole,” the document says. “Normal industry attrition rates spiked, merchant closures increased, and new-merchant origination channels weakened. The company was unable to identify and acquire merchant portfolios and sales channels on terms that would improve its financial condition.”
The document also says that in 2010’s second half, processor Fidelity National Information Services Inc. (FIS), which Pipeline called its “technology partner,” ceased providing the services Pipeline used, “forcing Pipeline to abandon its technology investment and to purse an alternative technology.” The document gives no detail about what FIS services Pipeline used.
Citing its weak finances, Pipeline recently hired corporate-turnaround specialist AlixPartners LLP to assess its options. That led to the Nov. 19 bankruptcy filing. Pipeline also hired Charlotte, N.C.-based Dragonfly Capital LLP in an attempt to sell the company as a going concern.
