Ingenico Is Making A Play For Hypercom for $332 Million

Implications: Ingenico wants to acquire Hypercom for $332 million but Hypercom's impending acquisition of Thales e-Transactions business unit could be a "deal breaker." Hypercom's shares shot up 30% on 2.11.08 on news of  Ingenico's offer to acquire Hypercom. Ingencio is offering a 59% premium on Hypercom's closing stock price on 2.8.08. Thales e-transactions business unit makes ATMs and other electronic payment terminals and the acquisition would complement Hypercom's product offerings, expand its global market reach to France, Germany, the U.K., Spain, Belgium and Sweden and create cost synergies. If 2008 performance metrics are met by the combined company, Thales could get a potential earn out of up to an additional $30 million. Since 2005, Hypercom has endured two management shakeups, with its  most recent in 2007, when its CEO Will Keiper resigned in July 2007. As Hypercom appears to be making a turn around the corner, Ingenico is knocking on its door with strings attached.

Analysis: Ingenico is making a play for Hypercom, however, Ingenico wants Hypercom to suspend its acquisition of Thales e-Transactions business unit as a stipulation to get the deal done. Here's the rub, in 2006, Ingenico entered into an agreement with Francisco Partners in 2006, (FP will provide Hypercom with a $60 million credit facility to finance the $120 million to acquire Thales e-Transactions unit) and although its unclear which company Ingenico was shopping at the time, the deal soured between Ingenico and Francisco Partners and one year later Ingenico is crying foul and portends Francisco Partners breached a non-disclosure agreement, which is why Ingenico wants to acquire Hypercom, minus its French rival Thales. 

1.  Hypercom announced a reorganization of its manufacturing and software development operations and outsourced manufacturing to a third-party contractor and moved software development to Singapore, Latvia and India to cut operational costs. Hypercom also named Philippe Tartavull as President & CEO, after the resignation of its CEO in July 2007

2.  Both Hypercom and Ingenico are pondering how to best compete with Verifone, who acquired Israeli based Lipman in 2006 for $793 million and put pressure on Hypercom and Ingenico to grow and produce profits like Verifone, the largest POS terminal manufacturer. However, Verifone has suffered its own hiccups after the acquisition of Lipman, which led to a decline in profits and accounting errors in sales and shipments of POS terminals (Point-of-Sale)

Takeaway:  As POS manufacturers jockey for position and market share, the good news for key players Verifone, Ingenico, Hypercom and Thales is that demand for their products is growing, which is fueled by the global shift to paying with credit cards and debit cards. The POS market is growing at a CAGR of 10% annually and new technologies such as wireless terminals are opening up new markets for POS vendors and wireless terminals will also bring higher prices and healthier profit margins. This should be a good read as we watch the battles ensue as POS competitors try to wipe each other out to gain global dominance.