NCR Corp. has struck a deal that will make it less reliant on the banking clients that buy its automated teller machines, video teller machines and other branch equipment.
The Duluth, Ga., vendor, which is also a big supplier of point of sale hardware and software for retailers and other businesses, has agreed to buy a competitor in this field, Radiant Systems Inc., for $1.2 billion in cash.
Today, about 55% of NCR's revenue comes from sales to the financial services industry, says Gil Luria, an analyst at Wedbush Securities LLC. Revenue from the retail industry, its other main sales segment, is about 35%. Luria says that after the acquisition the mix would be closer to 50% revenue from financial services and 40% from retail.
The deal, which NCR announced Monday, could help the company grow to 25% to 30% market share for the U.S. restaurant point of sale hardware and software, from an existing position of about 5% to 10%, Luria estimated.
NCR Chairman and Chief Executive Officer Bill Nuti told analysts Monday that the acquisition, expected to close in the third quarter, would help the company add a third business segment — hospitality — and give it opportunities to increase revenue by cross-selling each others' products to their respective customer bases. Nuti called Radiant an "unusually good fit for our company.
"By adding Radiant's business to NCR, we're establishing our third core vertical and strengthening our focus and penetration in hospitality and specialty retail, becoming an immediate leader in that segment," Nuti said. He added that the acquisition would increase NCR's market opportunity for the hospitality and retail segments by $8 billion.
Radiant, of Alpharetta, Ga., sells software for running cash registers, scheduling, inventory management and other functions to quick-service and "table service" restaurants as well as entertainment venues, such as movie theaters and stadiums.
Radiant's customers include Chick-fil-A Inc., Chipotle Mexican Grill Inc., BP PLC and AMC Entertainment Inc.'s AMC Theatres, a spokesman for NCR wrote in an email.
"Radiant has been a very good competitor," Luria says. "Radiant sells a lot of very functional software to restaurants as well as other retailers, and they've been able to grow very nicely within the market … over the last few years. That's not only a worthwhile business for [NCR] to buy, they could expand Radiant's distribution internationally."
About 15% of Radiant's business is international, the NCR spokesman wrote.
NCR has a much larger global presence, which would allow it to expand the market for Radiant's products, Luria says.
"I think the key … to this deal is the fact that Radiant has a very" small "business outside the U.S.," Luria says. "NCR is a global company that sells in practically every country."
"NCR can start selling Radiant point of sale [systems] anywhere in the world, and that's really the big opportunity here," Luria added.
On the call Nuti said the customer segments that Radiant services are fragmented and few vendors sell "comprehensive" products and services.
"Quite frankly this is a huge space for us to expand into," Nuti said.
NCR's revenue rose 4.5% in 2010, to $4.8 billion. Radiant's revenue rose 20.5% in 2010, to $346.4 million. Small and midsize businesses have been a catalyst for Radiant's growth, Nuti said.
With the acquisition of Radiant, NCR said it plans to create a third segment focused on hospitality and speciality retailers, which it already sells to but is a smaller part of its business.
"I think it gets them into a business that has some good growth characteristics," says Kartik Mehta, a research analyst with Northcoast Research Partners LLC. "I think NCR can leverage its distribution and scale to really propel Radiant internationally."
He added that NCR would have a more difficult time building up its presence in speciality retail from scratch. "This gets them a very good company with a very good product set, and lets them enter a market in a very quick way," Mehta says.
NCR said its cash tender offer, valued at $28 per Radiant share, will begin by July 25 and be open for at least 20 business days. The deal depends on at least 50% of Radiant shareholders accepting the deal, regulatory approval and other conditions.
