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NCR Makes Inroads Into Payment Processing Via JetPay Buyout

Zacks

NCR Corporation NCR recently announced that it has closed the acquisition of JetPay Corporation JTPY, a provider of end-to-end payment processing and Human Capital Management solutions.

The buyout will enable NCR to add a cloud-based payments platform into its enterprise point-of-sale (POS) terminals for retail and hospitality. The company aims to target primarily the small-medium sized businesses, which are increasingly adopting a unified POS and payment processing platform with this transaction.

The deal will also be instrumental in increasing recurring revenue growth of NCR. Moreover, by accelerating software and services mix, it will be expanding the company’s margins.

Financial Footing


The deal was originally announced on Oct 22, 2018. NCR then stated that it will buy the company for around $184 million through a combination of cash and credit lines.

Notably, the tender offer of $5.05 per JetPay share represents a multiple of 2.9 times the consensus revenue forecast of $63 million for fiscal 2018.

We note that JetPay generated third-quarter revenues of $15.5 million, which increased 14% year over year. Also, Payment services revenues, accounting for the bulk of JetPay's revenues, rose 16% to $11.3 million.

Meanwhile, NCR’s revenues of $1.55 billion in the last reported quarter fell 7% year over year due to a persistent decline in the company’s hardware segment.

NCR anticipates the agreement to be accretive to the company’s earnings within 12 months of its completion.

Acquisition: A Key Growth Catalyst

NCR’s diversification tactic from developing hardware to providing software and services is noteworthy. The addition of payment processing to its checkout systems and travel kiosks is a step in that direction.

Notably, the company is looking at discreet acquisitions to enhance mix-shift toward more software, services and recurring revenue.In relation to this, the JetPay integration will help the company expand its market, diversify revenue streams and strengthen product offerings.

Talking about the NCR-JetPay deal, Rivka Gewirtz Little, research director with IDC, said that the acquisition “reflects an important trend in consolidation in the payments ecosystem”.

We believe, the company looks at this consolidation to enable it to counter stiff competition in the FinTech industry from leading players like Square SQ, PayPal PYPL and Stripe.

During the third quarter, the company also culminated the acquisition of data analytics company, Zipscene. The latter provides targeted marketing data to restaurants by aggregating data from the buying patterns of restaurant customers. NCR expects to monetize the information collect via enterprise POS platform with Zipscene.

On the last earnings call, management sounded extremely optimistic about the purchases of JetPay and Zipscene, which they consider to be “exciting opportunities” for the company.

NCR has also bought StopLift Checkout Vision Systems for an undisclosed amount on Nov 6. The buyout enables NCR to integrate StopLift’s AI fraud technology into its POS portfolio for preventing theft in the retail environment.

Moreover, the company targets to snap up four-six deals a year, averaging about $100 million a transaction, and spend $400-$500 million on such contracts each fiscal year. Management is always on the lookout for such transactions, which poise the company well for growth.

NCR currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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