GTCR Will Keep Its Grip on VeriFone Even After the Proposed IPO

VeriFone Inc. will continue to be controlled by GTCR Golder Rauner LLC, a Chicago-based private equity firm, and its current chief executive, Douglas Bergeron, will continue to be a major shareholder even after the San Jose, Calif.-based point of sale terminal maker completes its proposed initial public offering of stock. This and other pieces of information are contained in a document filed today by VeriFone with the Securities and Exchange Commission in support of the IPO, which has been long expected by the electronic transactions industry. Then
document, a form S-1 registration statement, contains a preliminary prospectus thatn
casts light on both the company’s strategy and its current operations. It is not, however, the final prospectus, and so does not enumerate such key data as the number of shares the company expects to sell and how much capital it plans to raise. A statement from VeriFone today says a final prospectus can be obtained when available from Credit Suisse First Boston LLC in New York. Credit Suisse together with JP Morgan Securities Inc. will act as joint book-running mangers for the offering, the statement says. VeriFone executives were not available for comment, owing to the so-called quiet period before a stock offering.n
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The S-1 registration does say the company hopes to use proceeds from the offering to pay down debt, increase its market share in North America and Europe, beef up its presence in key vertical markets like fast food, and pursue acquisitions. In the fast food market, it says nine of the 10 biggest quick-service chains “are in the process of endorsing a formal electronic payment program for franchisees.” Last year, VeriFone scored a major win with Burger King Corp., and had installed terminals in 2,000 of the chain’s restaurants by July (Digital Transactions News, July 21, 2004). On the acquisition front, the company in December announced it was buying Go Software from Return on Investment Corp. for $13 million (Digital Transactions News, Dec. 6, 2004). The S-1 filing indicates more acquisitions are possible, but adds “there no agreements for acquisitions at this time.”n
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The document also points to deeper relationships with independent sales organizations and other resellers. “In North America,” the document says, “we are increasing sales to small and medium sized merchants by further strengthening our relationships with ISOs.” Some ISOs might find this statement somewhat ironic following the flap VeriFone caused in the reseller community last year when it tried to sell products directly to merchants via a Web site it had created and ultimately shut down. In the preliminary prospectus, VeriFone says one-third of its sales come from ISOs, distributors, resellers, and system integrators, with 42% coming from payment processors and financial institutions and 25% being direct sales to petroleum companies and other merchants. VeriFone reported $390 million in revenue in the year through Oct. 31, 2004, up 15% over the previous period.n
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It is in the section where VeriFone spells out its business risks, however, where it makes some of its most revealing statements. Here it points out that its 10 largest customers account for 36.3% of its sales, with First Data Corp., including its Tasq Technologies terminal unit, alone accounting for 16.9%. Though this is down from the 41.6% the top 10 accounted for two years ago, it is virtually flat with the 36.7% they controlled as of Oct. 31, 2003. The share accounted for by FDC has grown from 14.7% a year ago. It also points out that majority shareholder GTCR will remain in control of the company after the offering. Funds controlled by GTCR invested in VeriFone in a recapitalization led by Bergeron in 2002. Founded in 1981, the company went public the first time in 1990, and then was acquired by Hewlett Packard in 1997. Gores Technology Group LLC took control of the company in 2001.n
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In its S-1 registration, VeriFone lists “PAY” as its proposed symbol on the New York Stock Exchange.