Hypercom And Ex-Boss of TNS Lay Plans to Spark Growth for HBNet

Hypercom Corp. and the McDonnell Group are forming a joint venture to deliver high speed transaction transport services worldwide. The venture, which will acquire and operate Hypercom's 5-year-old HBNet transaction-transport service, will be called Phoenix Managed Networks LLC and will be headed by John (Jack) McDonnell, founder and former chief executive of HBNet rival Transaction Network Services Inc.. Terms of the deal?expected to close at the end of January?were not disclosed. However, Hypercom will “have substantial participation in the venture,” says Philippe Tartavull, Hypercom chief executive and president. The joint venture will enable Hypercom to expand market share in the electronic transaction network market, Tartavull says. “I was looking at how to develop this business very quickly and give it the scale it deserves,” Tartavull says, adding the best alternative was to create a joint venture with the McDonnell group and staff it with the ex-management team of TNS. Former TNS executives Matthew Mudd and Trevor Fall also will be part of the new venture's management team. “We bring into the joint venture a management team that clearly knows the space,” Tartavull says. “By focusing a team to the development, combined with the experience and the management team and the relationship, that's going to be very powerful.” Phoenix Managed Networks will use Hypercom's HBNet network to speed the authorization and processing of electronic transactions for retail point-of-sale, financial, government, health-care, and other customers in dial, wireless, and IP point-of-sale markets. It will also use Hypercom's SmartPay gateway technology to support wireless and IP-initiated transactions. “This is a great opportunity to create another very competitive network in the transaction business,” McDonnell says. “TNS back in 1990 was created using Hypercom technology.” Phoenix will focus on expanding HBNet's footprint in North America, where it currently an approximately 5% market share, as well as internationally, McDonnell says. “When I left TNS, we were in 39 countries,” says McDonnell. “I see a major opportunity to take HBNet as part of Phoenix Managed Networks and recreate that kind of footprint, clearly starting in the countries where we have the best business visibility in terms of contacts with banks and processors.” Hypercom technology already is being used internationally by private networks in the United Kingdom, Brazil, and China, among other countries. “We know that the technology is capable of meeting all the international standards, which in this business is like the tower of Babel. We feel that it's going to be a fairly seamless expansion,” McDonnell says. The McDonnell venture group will invest “millions of dollars” in the expansion, McDonnell adds. “We would envision that certainly in the North American market over the next two to three years, we can grow to $50 million in revenue and probably $20 million to $25 million revenues in the international markets,” McDonnell says. “The game plan is to take this company in three years to somewhere between the $70 million and $100 million revenue range.” Hypercom doesn't break out revenue for HBNet. Phoenix Managed Networks will continue the aggressive pricing strategy of HBNet, McDonnell says. “The fact is my former company is the dominant player in most of the markets we're looking at,” he says. “So clearly, we have to look at the existing pricing, and frankly, we intend to be very competitive with the existing pricing structure.” McDonnell, who is chairman and chief executive at terminal maker ExaDigm Inc., will resign those positions when the joint venture deal closes. McDonnell Group will continue to have an investment in ExaDigm, McDonnell says.