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VeriFone + Lipman = very big footprint

VeriFone closed its acquisition of Lipman Electronic Engineering Ltd. for $793 million on Nov. 1, 2006. This gives the terminal manufacturer well over half of the U.S. market for payment systems, according to Chief Executive Officer Doug Bergeron. The merger received U.S. Justice Department approval in September.

VeriFone's new heft will have an impact: Rather than develop new applications such as gift and prepaid products for terminals with little POS presence, product designers will take their ideas to "the guy with 65% market share," Bergeron said at the Western States Acquirers' Association annual meeting, Oct. 19.

VeriFone will support and upgrade Lipman's terminals. "We will not 'end of life' any Nurit product," Bergeron said.

Larry Bleiler, General Manager of VeriFone's North American Financial Group, said "The Nurit product line is now backed by VeriFone's scale, which permits significant investment in research and development and ... product diversification. Just as important, we have worked hard to ensure broad interoperability, both within and across our platforms and product lines."

Lipman had total sales of $235.4 million in 2005; U.S. sales accounted for $59.1 million. VeriFone took in $485.4 million in fiscal year 2005; its U.S. sales totaled $289.7 million.

Why, why? ... Wireless

Lipman's knowledge of the wireless market was a major lure. "Lipman, frankly, knows more about wireless systems than anybody in the market, including VeriFone," Bergeron said.

The U.S. market's greatest potential is in wireless, which Bergeron estimated is a $300-million-a-year business. The acquisition is well-timed because of Lipman's leadership in wireless just as the technology takes hold, he said.

Lipman's varied wireless solutions will integrate with hard-to-automate transactions: taxi meters and restaurant networks.

VeriFone encourages third-party application developers to extend the reach of the company's terminals. "We can't dream up the stuff that people write to the Vx, Omni and Nurit platforms," he said. But opening these systems enables others to create the solutions. VeriFone also expects to benefit from Lipman's "good ISO channel relationships," Bergeron said.

"Lipman, following classic guerrilla marketing strategy, generated strong relationships with the feet on the street in the ISO channel and built from there by targeting an early emerging market: wireless," Bleiler said.

As a result of the merger, VeriFone will give ISOs new technologies and opportunities to convert cash transactions, make use of Internet protocol (IP) and close security loopholes.

Processors chasing merchants already accepting bankcards should focus on capturing transactions still paid by cash, Bergeron said. "That 40% of the consumer retail economy is really going to fuel the processors' and ISOs' growth over the next five to 10 years."

ISOs should urge merchants to take advantage of cheap Internet access and sell them on equipment for IP-based transactions, he said. "Why wouldn't you, as a retailer, want to make use of two-second response time and all the future benefits that IP provides?"

Restaurant tipping point

Congressional scrutiny of identity theft that begins with credit card vulnerability "is going to drive wireless pay-at-the-table applications, which are a phenomenal opportunity for ISOs," Bergeron said. "Only in restaurants do you give away your card." He predicted asking consumers to hand over their credit cards and then taking them out of view for processing "will become socially unacceptable. Today, a tipping point is right around the corner."

Right now, sales of pay-at-the-table systems aren't significant; but within three years, consumers will start demanding them, Bergeron added.

VeriFone's investment in this area gives ISOs their selling point: "We've spent millions integrating these systems with Micros and Aloha" and capturing their dealer and direct-market channels, Bergeron said.

Lipman also brings additional research and development dollars to VeriFone. "The ante to the poker game in R&D is going up and up," Bergeron said. Lipman adds $15 million to VeriFone's $50 million R&D expenditure for 2006.

Research spending is crucial to VeriFone's push to stay ahead of industry needs, Bergeron said. Rather than becoming a commodity, the equipment business has grown far more complex, with multimedia equipment and systems for multilane retail. "The whole smart-card thing in Europe ... takes a high spend of research and development to get there."

Other markets

Lipman's inroads into international markets were also a key driver to the acquisition. The company had forged its way into countries where VeriFone had done little: Turkey, China, Spain, Italy and Brazil.

By 2008, 60% to 70% of VeriFone's sales will be outside the United States, Bergeron said. Card systems have big potential in the cash economies of China and Mexico, where governments subsidize the conversion because electronic transactions enable the collection of far more value-added (sales) tax, which is currently paid on the honor system, he added.

VeriFone also completed the acquisition of Trintech Group Plc's payment systems business for $12.1 million in cash on Sept. 1. The assets acquired included Trintech's unattended and outdoor payment systems and EFT software.

Article published in issue number 061101

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