An Ingenico takeover could end the era of independent POS hardware

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The fintech wave has nearly devoured the entire point of sale industry, as lone major holdout Ingenico weighs an unsolicited bid from an investment bank’s payments group.

Paris-based Natixis SA’s payments business is attempting to take over Ingenico, also based in Paris, in an acquisition that would put Ingenico in league with its POS terminal brethren — Verifone and Diebold Nixdorf, which were recently acquired or merged; and NCR, which underwent a massive corporate restructuring. Diebold Nixdorf also received a $650 million loan to shore up its finances.

The point of sale industry has struggled to keep up with the shift in retail commerce to digital, and the onslaught of nimbler fintechs bearing solutions geared to serve both small and large merchants for physical and digital channels.

Ingenico issued a release on the takeover bid, saying it "has received preliminary approaches for a strategic transaction. Ingenico Group has initiated a review of its options and of their respective merits." Ingenico did not provide further comment to PaymentsSource by deadline.

The incumbents' struggles are reflected in price-to-sales ratios (P/S). For example, PayPal's $2.2 billion acquisition of Sweden’s iZettle, which completed earlier this year, included iZettle's 2017 revenue of $113 million and an operating loss of roughly $26.7 million for the year, according to Reuters.

In contrast, Ingenico's 2017 financial results reveal $2.89 billion in revenue and $427 million in operating income. So using a P/S ratio, PayPal paid 19.5 times each sales dollar iZettle booked for 2017. In examining the Natixis $4.6 billion bid, it values Ingenico at 1.6 times each sales dollar booked.

An alternative analytical perspective is Ingenico’s total assets at the end of 2017 of $6.53 billion, less the $2.85 billion in goodwill (which typically represents overpayment for previous acquisitions and is written off over time) which yields $3.68 billion in assets. Natixis’ bid of $4.6 billion represents only a 25% premium on assets (both short-term and long-term) that could be liquidated or redeployed. Since Ingenico’s assets at the end of 2017 (cash, short-term investments inventory, receivables, etc.) amounted to almost $2.3 billion, the bid becomes roughly two times what Ingenico has in the bank, the warehouse or is owed to it by merchants in recent invoices.

Like the other POS terminal incumbents, Ingenico has diversified in recent years. Ingenico has made efforts in the last few years to expand its global footprint, especially in its home European market and attempted to address the growing threat of e-commerce to its retail POS business.

Earlier this year it struck a deal with BS Payone — a subsidiary of Berlin-based Sparkassen FinanzGruppe — to combine its assets with BS Payone’s assets in the DACH region (Germany, Australia and Switzerland). The deal would give Ingenico a 52 percent share in the new venture; however, it’s still old line technology firms circling the wagons to defend themselves.

In 2017, Ingenico purchased Sweden’s Bambora for $1.7 billion in an effort to expand into digital commerce and reduce its reliance on traditional brick and mortar retail. While the effort is partially transformative to Ingenico’s business, it’s acquisitions such as Bambora that lead to massive amounts of goodwill (that have little value) being written into the balance sheet.

Ingenico's peers have had similar challenges.

For example, as consolidation began in the late 2000s/early 2010s, Verifone began to struggle with upstarts such as Square entering its POS market, serving smaller merchants; and Stripe, which focuses on building payments APIs for online merchants and mobile apps, taking its future growth in the form of digital commerce. When POS terminal competitor Hypercom stumbled, Verifone acquired it in 2011 in a market consolidation move.

As the POS terminal market continued to struggle after the recession, Verifone limped along until it obtained a new CEO, Paul Galant in 2013 to turn the business around. Despite the U.S. market converting to EMV, which required massive new terminal installations across retail, Verifone could not shake the entrance of fintechs into its small merchant base. So it sold itself to Francisco Partners in a private equity deal this year for $3.4 billion.

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