What's going on?
Verifone, a US manufacturer of card payment machines, agreed late on Monday to sell itself to a group of investors led by a private equity firm [tweet this] – and its shares dialled up 50% on Tuesday! They’ll be paying in cash, not credit…
What does this mean?
Verifone has struggled in recent years to compete with rival Ingenico and new startups like Square and iZettle in the payments business. It’s also been hurt by increased competition in Brazil and China (where companies can make cheaper products). Combined with delays installing new products, Verifone’s revenues declined like a maxed-out Amex.
Verifone’s buyers, though, believe that it’s still in the early days of transitioning from a card machine company to one that offers a wider range of payments solutions. “Going private” might give the company room to turn things around without the distraction of public scrutiny.
Why should I care?
For markets: Verifone’s investors love this deal.
Verifone’s share price jumped up 52% on Tuesday to closely match the $3.4 billion at which the proposed deal values the company. There may still be a twist, however: as well as there still being regulatory hurdles to clear, the proposed acquisition includes a “go shop” clause which allows Verifone’s board to consider any better offers that might crop up before May 24.
The bigger picture: Payments evolution in the US should be a boon for Verifone.
Big credit card companies Europay, Visa and Mastercard banded together 25 years ago to develop the “chip and pin” payment technology which now serves most of the world (the US was one of the slowest adopters, and still has until 2020 to fully get there). As the country finally lumbers from magnetic stripe (swipe) to chip cards, companies like Verifone should benefit from a massive refresh of card payment machines across the country, as well as broader upgrades to payment technology as consumers increasingly turn to mobile and multi-channel shopping experiences.