VeriFone Systems Inc. (PAY), the largest maker of credit card terminals, may spend as much as $1 billion a year on acquisitions in emerging markets and data services, Chief Executive Officer Douglas Bergeron said.
The San Jose, California-based company anticipates one $500 million to $700 million deal annually, as well as several transactions of about $10 million to $20 million, he said.
While Europe is VeriFone’s fastest-growing region, the company is expanding elsewhere to help add share in the global mobile-payments market, which Juniper Research says may reach $670 billion by 2015. Retailers worldwide will buy 77 million card-payment terminals from 2012 to 2016, up from 65 million in the prior five-year period, projects David Robertson, publisher of The Nilson Report, which tracks consumer payment systems.
“Our second-largest growth driver is the emerging markets,” Bergeron said in an interview. “There’s something to leverage there in terms of adding more services, more capabilities. It’s a real jump ball for a company like ours that wants to take on a bigger piece of the payment ecosystem.”
He said that potential targets’ enterprise value, which includes market capitalization and debt and excludes cash holdings, won’t exceed $1 billion in any given year.
Buyouts will probably be in countries such as Turkey and Brazil, which have a rapidly expanding middle class, and target companies that can help VeriFone expand the services and software it offers merchants to analyze card transaction data, Bergeron said. By next year, as much as half of revenue may come from emerging markets, he said.
VeriFone fell 54 cents to $31.12 at the market close today on the New York Stock Exchange, paring an earlier decline of as much as 4.5 percent. The stock has dropped 19 percent this year.
VeriFone has been expanding rapidly in developing markets, and adding new products such as software, hardware and services to facilitate transactions made with cell phones. Its products already let U.S. merchants accept Google Inc. (GOOG)’s Google Wallet service, which consumers can use to pay and redeem coupons at cash registers via mobile phones.
VeriFone has made large acquisitions in the past. On Aug. 4, it reached a settlement with the U.S. Justice Department to acquire rival Hypercom Corp. for $485 million on the condition it sells Hypercom’s U.S. card-payment terminal business. In 2006, the company spent $793 million in cash and stock to buy Lipman Electronic Engineering Ltd., another provider of payment systems. The company has $600 million in cash.
To further boost growth, VeriFone could try to acquire terminal makers with wide distribution in Asia, Gil Luria, an analyst at Wedbush Securities Inc., said in an interview. Possible acquisition targets may include Korea’s CyberNet Inc., China-based Shenzhen Zhengtong Electronics Co. Ltd., and Taiwan’s Uniform Industrial Corp., he said.
Bergeron didn’t name any specific companies he’d like to acquire. Representatives from CyberNet, Uniform Industrial and Shenzhen Zhentong Electronics didn’t respond to requests for comment.
As the fastest-growing terminals market in the world, China is especially attractive for VeriFone, Robertson said. Local banks are working to switch over to a new type of cards in the next several years that will require merchants to buy new card- accepting terminals. A local distribution network may be key to capitalizing on that opportunity. Shenzhen Zhentong Electronics, for one, has 46 offices in China, according to its website.
To provide more services to merchants, VeriFone could also acquire one of more than 100 payment processors in countries where credit card penetration is still low and is just starting to rise, Robertson said. These companies have close relationships with merchants, and could help VeriFone offer features such as coupons, daily deals, prepaid cards and loyalty programs, Robertson said.
“Everyone is trying to figure out the intersection of payments and commerce vis-a-vis mobile devices,” Robertson said. “It’s there where I am sure acquisitions are going to happen. It’s logical for them to want more pieces of the transaction pie.”
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