VeriFone Holdings, Inc.’s announced acquisition of Lipman Electronic Engineering Ltd. is expected to be the first and the largest deal among POS equipment manufacturers in a current round of industry consolidation, according to Ali Raza, Executive Vice President for Speer & Associates, Alpharetta, Ga., but other combinations are likely to occur among smaller companies, not among the other major players, analysts agree.
    Following the acquisition, which was announced in April and is expected to close by the end of October, VeriFone will become the largest global provider of electronic payment solutions and services, capitalizing on accelerating growth in the emerging markets and demand for IP-based and wireless payment systems, according to Raza.
    “This is a great acquisition for VeriFone,” added Barry Davis, Principal for First Annapolis Consulting. “They get access to a company that is strong in technology and has excellent international marketing capability. Lipman has seen strong market share growth and they have made it a very competitive environment for VeriFone and Hypercom.
    “The POS environment has been quite competitive for a while and their technology has always been years ahead of merchant demand,” Barry said. “We are finally starting to see merchants invest in better technology which has been a relief for the POS players. Even with the relief of increased merchant demand, I think consolidation will be helpful for the industry. Obviously, integrating VeriFone and Lipman could be a challenge, especially if cultural issues are involved.”
    The combination will make VeriFone much larger than the other two major players in the market, Hypercom and Ingenico, Raza said. The larger size will give VeriFone some advantages in pricing and scale, forcing Hypercom and Ingenico to seek combinations of their own, according to Raza. However, he wouldn’t speculate as to whether Hypercom or Ingenico would be acquisition targets themselves. (Representatives from those two companies didn’t respond to Transaction World’s several requests for interviews. )
    Lipman shareholders will receive 0.5 shares of VeriFone common stock and $14.304 in cash, adjusted for a special dividend for each Lipman share. The amount of the special dividend has not been finally determined but will likely exceed $23 million. Alternatively, Lipman shareholders may elect to receive either $29.07 in cash, or 0.9844 shares of VeriFone stock for each Lipman share, each adjusted for the special dividend. The cash and stock elections are subject to proration such that VeriFone will issue in the aggregate approximately 13.3 million shares of VeriFone stock and pay approximately $382 million in cash, adjusted for the special dividend.
    The acquisition is valued at $793 million based on VeriFone’s share price at the close of trading on April 7, 2006. VeriFone expects the transaction to be accretive to street consensus estimates for fiscal 2007 net income, as adjusted. Following completion of the acquisition, VeriFone will continue to trade on the New York Stock Exchange and will be dual listed on the Tel Aviv Stock Exchange.
    “The acquisition provides exciting opportunities for VeriFone,” said Douglas G. Bergeron, VeriFone chairman and CEO. “The two companies are the fastest growing and most profitable providers of point-of- sale electronic payment technologies. Geographically, the businesses are complementary, and will be the leader in North America and in the emerging markets, and number one or two in most other key markets worldwide.”
    Raza agreed that the deal is a good fit in terms of geographic strengths of the two companies. He also said that it’s a good fit in terms of the equipment specialities of the two firms.
    “Through this acquisition we will extend our technology leadership, particularly in the rapidly growing wireless and IP segments,” added Bergeron. “Most importantly, we will be able to bring new technologies to market more quickly, offer a broader set of solutions and increased level of service and support to our customers worldwide.”
    “The ability to leverage VeriFone’s worldwide sales and marketing channels will increase the rate at which we can penetrate the emerging markets that have tremendous growth potential,” said Isaac Angel, Lipman President and CEO.
    Greg Buzek, President of IHL Consulting Group, Franklin, Tenn., agreed that the combination is more of an international play than a U.S. deal. Though the deal could drive some more consolidation, any other combinations would be among smaller companies, Buzek says.
    The VeriFone-Lipman combination should also provide a wider product set from the combined company, which will be beneficial for ISOs, Buzek said. “The long-term question is whether the Lipman brand will be brought under the VeriFone name.”
    Raza and Bucek expect the combination to be a boost for VeriFone’s bottom line.
    In its fiscal year ended October 31, 2005, VeriFone’s net revenues were $485.4 million, an increase of 24 percent over the comparable period of 2004 with domestic and international growth well exceeding industry growth rates. Net income, as adjusted, for the year was $49.7 million. Lipman’s revenues in the fiscal year ended December 31, 2005 were $235.4 million, an increase of 30.4 percent over the comparable period of 2004 and net income for the year was $20 million.