NCR spent about eight months considering options to restructure the company, and decided that dividing the firm in two — one part that handles digital commerce and another that manufactures ATMs — was its best option.
"We needed to simplify those messages to the investment community," Michael Hayford, NCR's chief executive, said during a conference call with investors to explain the company's decision. "Investors can choose which business they want to invest in."
The digital commerce portion will be a growth business focused on the part of NCR that has transitioned from a hardware company to a
The digital commerce unit is experiencing double-digit growth, despite some headwinds due to the supply-chain crunch of the past year, NCR told investors. By contrast, the ATM business is expanding at a rate of 2% to 5% yearly.
NCR has changed course many times in its 141-year history. Founded in 1881 as
Like other point-of-sale terminal companies, NCR is adjusting to a shift in the payments industry fueled in part by competition from digital firms like Stripe and Block and in part the checkout-free future being developed by the likes of
"We're trying to get the point of sale to be a point of product," Hayford said. NCR's technology would be combined with other products such as incentive marketing and embedded payments, or the practice of using consumers' enrolled credentials in a payment app to offer financial products from other companies, he added.
The separation is expected to be complete by the end of 2023, and the company will continue to report earnings as a combined entity until the end of this year. NCR began to consider different financial options, such as a sale, in February. The difficult overall market in 2022 made a sale less likely as the year progressed.
"It became clear to us that the current financial markets would make it very difficult to deliver a transaction that would accurately reflect the value of the company to our shareholders," Hayford said.
Wall Street quickly pounced on the decision on Monday, with
Digital capabilities are the future with a bigger upside, but require significant investment to realize their potential, according to Marco Salazar, director of payments for Javelin Strategy & Research. While the ATM business doesn't have as big of an upside as the digital business, it still generates a significant amount of revenue and will continue to do so in the short term, Salazar said.
"Potential buyers had a hard time providing a fair valuation for the company as a whole, given that the two businesses had different trajectories," Salazar said.
NCR, which has strengths in self-checkout, is on the edge of the shift from self-checkout to autonomous checkout, or the expansion of the "just walk out" concept pushed by Amazon Go and the more than half-dozen companies developing similar systems for other retailers, according to Richard Crone, a payments consultant, who said autonomous checkout is expanding faster than self-checkout.
Given NCR's global scale — it has more than 1,700 retail clients — it's producing transaction data that could fit well with future autonomous or checkout-free development, Crone said. NCR's hardware specialization could serve as a competitive advantage for one of the autonomous checkout startups that are reengineering the physical retail experience, he said.
"Splitting the company in this way is normally the type of thing that is attractive to private equity investors," Crone said.
During its investors call, NCR did not directly address the possibility of a sale of one or both of its units between now and the target separation date at the end of 2023. But NCR did not rule it out, saying its status as a private company compelled it to consider any offer that could improve the company's performance. NCR would not provide comment.
The side of the business that will focus on digital commerce earns about $4 billion in yearly revenue, while the ATM side earns about $3.8 billion in revenue. NCR's ATM business got a boost in 2021 through an acquisition of
Most people aren't spending bitcoin in stores, but major point-of-sale terminal makers are developing technology and business relationships on the belief that demand will build fast.
On the digital commerce side, NCR hopes to capitalize on the vast shift to digital payments during the past three years.
"There has been a significant shift in consumer and retail behavior and retailers and restaurants have to change their underlying infrastructure," Hayford said
NCR plans to operate its ATM business "as a service" focusing on remote software upgrades with less emphasis on manufacturing machines, which the company hopes will offset broad market declines in ATMs.
"There is still a need for cash in many markets, and access to cash collection points," Hayford said. The ATM business will focus on supporting cryptocurrency and other financial products through ATMs, he said.
The split will allow NCR to make adequate investments into each company, whether those investments are funded with cash on hand or an injection of funds originating from external sources, according to Salazar.
"This highlights the need of significant investment to continue pace with that of fintechs and big tech firms, who continue to exhibit enormous pressure throughout the payments ecosystem," Salazar said.
