NCR Corp. took on the mission of reinventing itself more than a year ago. Part of that reinvention had to do with transforming from a hardware company into a more diverse provider of software and maintenance services.
This week's deal to buy Retalix Ltd. follows NCR's decision last year to buy hospitality industry software developer Radiant Systems Inc., thus adding the software-as-a-service business model to the Duluth, Ga., ATM maker's offerings.
The addition of Retalix, which provides back-office and mobile commerce software mostly for the grocery and convenient store industries, allows NCR to fill the gaps in its offerings for retailers.
"I don't know of another company on the planet that has the ability to talk to a customer about a fully integrated end-to-end solution" from point-of-sale hardware and software to back-office software and full maintenance services, said Bill Nuti, NCR's chairman and CEO, in a conference call with investors and analysts.
Strengthening software-as-a-service offerings was an important consideration for the NCR board and the company's executives as part of "the reinvention of our company," Nuti said.
The acquisition makes sense for NCR because its strength in retail has been selling hardware to grocery stores, whereas Retalix provides the software, which is the better part of that business, says Gil Luria, an analyst with Los Angeles-based Wedbush Securities.
Even with these two acquisitions, NCR still pulls in the lion's share of its revenue on the hardware side, Luria says.
"You have to keep it in perspective in realizing that after this acquisition, NCR is likely to get about $700 million in revenue from software, but it's a $5.5 billion company," Luria says.
However, Nuti emphasized that NCR's goal is to create $1 billion in business on software alone. NCR agreed to pay $650 million for Retalix, which is based in Israel.
Retalix will be a small part of the overall business, Luria says, but "it is a step" toward establishing a fuller offering for the retail industry.
NCR may be paying too much for Retalix, Luria says. However, he notes the software company has more than 30 years of experience.
"They are very good at what they do," he says.
Retalix provides various services that complement what NCR offers, says John Bruno, NCR's chief technology officer and executive vice president of corporate development, during the conference call.
"There are some very good things for our customers on the marketing side, especially with how Retalix connects with mobile platforms," Bruno said.
NCR will bolster its enterprise and back-office software offerings with the addition of Retalix, Bruno added.
Nuti said NCR would continue to pursue software companies, though he didn't foresee another acquisition taking place in the near future.
"We are riveted on the notion of balance [between hardware and software] in our growth, and we will make acquisitions that are really good fits," Nuti said. "I don't know of another company on the radar today that fits like Radiant and Retalix, so it's time for us to sit back and evaluate and then maybe circle back in a year or two."
Under the terms of the agreement, which the companies expect to close during the first quarter of 2013, Retalix will merge with a unit of NCR.
Retalix currently provides software and services to more than 70,000 retail locations in more than 50 countries.
"Our goal is to be a hardware-enabled, software-driven business," Nuti said.