VeriFone Systems Inc. once again is preparing to become a privately held enterprise, according to Monday’s announcement that an investor group led by Francisco Partners has agreed to buy the point-of-sale terminal and services provider for $3.4 billion.
The deal, expected to close in the third quarter, values each VeriFone share at $23.04, representing an almost 54% premium over the April 9 closing price of $15. In early trading Tuesday, VeriFone shares were valued at $22.78. In the past five years, VeriFone’s stock peaked at $38.17 in May 2015, but has not fetched more than $20.84 per share since Jan. 1, 2017, according to Google Finance.
VeriFone says its board of directors unanimously approved the agreement, and it awaits shareholder approval.
Neither VeriFone nor Francisco Partners responded to inquiries from Digital Transactions News, but in a press release they gave hints about the direction of the company post-buyout.
“This investment builds on the strength of our financial technology, systems, and software franchises,” Dipanjan “DJ” Deb, co-founder and chief executive of Francisco Partners, said in a press release. “VeriFone will receive the highest focus of Francisco Partners as we support its continued growth and transformation in an increasingly software-centric world.”
VeriFone chief executive Paul Galant said the transaction provides cash value to the company’s shareholders and benefits to its clients. “We believe this transaction reflects the progress we have made executing our transformation from a terminal sales company to a payments and commerce solutions provider,” Galant said in the press release. “With Francisco Partners’ resources, expertise, and track record growing global technology businesses, we are confident that we will be better positioned to serve the needs of our clients around the globe.”
POS terminal companies like VeriFone have adopted services and stressed technology development in a bid to broaden their revenue base, especially as the market for traditional POS terminals became saturated, even with EMV’s U.S. arrival.
“Legacy POS hardware players, like VeriFone, have recently struggled with the EMV transition as well as the cloud-based POS evolution (which may have been fueled in part by the EMV transition),” Jared Drieling, senior director of business intelligence at The Strawhecker Group, says in an email message. “The stock price of VeriFone has reflected this over the course of the past two years.”
“Beyond EMV, despite pursuing acquisitions and introducing new services, VeriFone has continued to trail other acquiring-industry firms and POS players that are bringing software-based payment systems to merchants, systems that often use tablets coupled with specialized apps that are cloud-based,” Drieling continues. “These other firms include Square, First Data’s Clover, Harbortouch, and Toast.” Toast focuses on restaurant POS systems.
This increasing competitiveness has had an impact on VeriFone’s attempts to enter the fray with products like its Carbon devices. “Recent VeriFone product launches, like the Carbon Mobile 5 device and VeriFone e280 mobile point-of-sale (mPOS) solution, will take some time to contribute to growth,” Drieling says. “However, most of these new entrants are focused or specialized in a niche vertical, for example Toast, making it even more difficult for large, one-stop organizations like VeriFone to gain traction from their new services.”
“At the end of the day, I suspect that going private will allow VeriFone to better focus on transforming itself from a legacy POS hardware player to a services-led payments provider without having to manage the scrutiny from Wall Street,” Drieling says.
VeriFone’s stock performance in recent years made private equity a viable option, suggests Michael Moeser, director of the payments practice at Javelin Strategy & Research.
“One only needs to look at the VeriFone stock to understand why they chose to go private,” Moeser says in an email to Digital Transactions News. “It was selling in the $35-$38 range when EMV was mandated back in the fall of 2015 and was most recently was selling at $16-$18 before the announcement so clearly the market had lost confidence in their ability to compete.”
Companies like Square took market share at the low end along with the likes of Stripe and PayPal Holdings Inc. and its Braintree unit beating VeriFone in e-commerce, he says. Ingenico Group, VeriFone’s arch rival, “was gobbling up market share through acquisitions.”
Galant’s hiring as chief executive in 2013 ushered in a massive turnaround plan, but “VeriFone was not moving fast enough for the market to appreciate their value,” Moeser says. “Strong headwinds from new technology standards, such as PIN-on-glass, meant that their business is continuing to change faster than they can adapt. So instead of ending up on someone else’s shopping list, they decided their only option was to seek refuge in private equity.”
San Jose, Calif.-based VeriFone was privately held from its inception in 1981 through 1990, and then was publicly held through 1997. That year, computing giant Hewlett-Packard, now known as HP Inc., bought the company. VeriFone went public again in 2005.
The Francisco Partners-led buyout also includes British Columbia Investment Management Corp., which manages investments for the Canadian province’s public sector.
VeriFone can consider other bids through May 24 via a “go-shop” clause in the agreement.