News

NCR acquires Tidel Engineering

February 12, 2006

This article appeared in the ATM & Financial Self-Service Executive Summary, Winter 2006.

After months of negotiation and paperwork, NCR Corp. has completed its acquisition of Tidel Engineering LP, a Carrollton, Texas-based manufacturer of retail-oriented ATMs popular with independent sales organizations.

Corporate shareholders of Tidel Technologies Inc., Tidel Engineering's parent, approved the $10.2 million deal Dec. 28. The expected agreement was announced in February 2005 but took nearly a year to finalize while Tidel worked to get its financial filings up to date.

At the time, NCR also announced that it expected to hire two key Tidel executives. But after the December meeting, the two companies told ATMmarketplace that Mike Hudson, Tidel Engineering's former executive vice president and chief operating officer, will be the only key executive from Tidel to join the new NCR subsidiary, NCR EasyPoint ATM LLC.

No mention was made regarding the other executive - believed to be Tidel Engineering president and chief executive officer Mark Levenick.

Sam M. Ditzion, president and CEO of Boston-based Tremont Capital Group, an advisory firm that focuses on mergers and acquisitions within the ATM industry, told ATMmarketplace that he suspects Levenick, who also serves as the CEO and COO of Tidel Technologies, is likely to stay with Tidel Technologies until the rest of the company is sold off.

Fifty-seven Tidel Engineering employees are following Hudson to NCR, including Jane Hollingsworth, who will be the director of customer service, technical service and training organizations for the new subsidiary.

NCR EasyPoint ATM LLC, which will operate as a separate NCR entity, will be led by Hudson, who has been named the subsidiary's general manager. NCR's EasyPoint product line will be transitioned to the subsidiary, where it will be integrated with Tidel's 3000 series, said Brad Lozier, vice president of product management for NCR's Financial Solutions division.

The new product line initially will be marketed as the Tidel EasyPoint ATM.

"The product managers of EasyPoint, those with long-term NCR experience, will be working for Mike, and he'll have the ability to work with these product managers to expand and develop products," Lozier said.

A market difference

When word of NCR's expected acquisition of Tidel Engineering hit the street last year, industry observers weren't surprised. Although a king in the financial institution space, NCR was never able to penetrate the lucrative ISO-dominated retail market. And Tidel, which for years had struggled to pull itself from the depths of debt it incurred after the Credit Card Center debacle, was ripe for the buy.

From 2000 to 2001, 70 percent of Tidel's machines were going to CCC. The downfall of CCC forced Tidel to write off $25 million in 2001, and eventually led the company to borrow $6.7 million from Laurus Master Fund Ltd. - a debt that increased by nearly $2 million because Tidel could not meet loan payment obligations, according to one SEC filing.

So to those looking on, the match had all the makings of a smart move. But for the match to work, observers say, it's important for NCR to let Tidel be Tidel - that is, treat NCR EasyPoint as an independent subsidiary in practice and paperwork.

NCR has been treading lightly with operational decisions related to its newest subsidiary, Lozier said. "We didn't want to have EasyPoint mirroring something Tidel was doing, and we didn't think it made sense from a corporate-structure perspective. Doing it a different way would have been negative and sent the wrong message to the ISO market."

Overnight, NCR has become one of the top three ISO manufacturers, and the company is not taking that responsibility lightly, he added.

"The culture of the two companies is different. It's going to take change at NCR to not layer on cost to what Tidel is doing. … It's going to be a challenge."

And growth through acquisition has worked well for NCR. Lozier points to NCR's Teradata Data Warehousing division and the Gasper Corp. subsidiary - both of which were successful acquisitions.

"(Gasper) had a very large multivendor business, and we've been able to integrate Gasper into our product line," he said.

NCR expects its integration of Tidel Engineering to run just as smoothly. Contracts with distributors will be transferred, making the switch relatively seamless, Hudson said.

A win-win

From Hudson's perspective, the deal only can be perceived as a win-win.

"From Tidel's standpoint, we come out ahead because we are now aligned with the worldwide presence of NCR," he said. "NCR comes out ahead because Tidel has been a strong performer in the off-premises market."

The CCC morass was a bump in the road. Distributors liked, and some even continued to buy, Tidel's products. But most got cold feet after the company's debt continued to mount.

In 2004, Tidel's ATM revenue hit $12.5 million, and net income was $11 million. And Hudson said ATM sales increased year over year from '03 to '05 by roughly 25 percent, even if the company didn't make a profit during every one of those years.

"The one thing that's been an inhibitor for Tidel in the domestic market has been the lack of financial stability," he said. "It hasn't been quality of product, lack of sales force, etc. It's been financial instability - and the deal with NCR addresses that problem."

Tidel Engineering's financial instability is expected to lead to the sale of Tidel Technologies, according to a related SEC filing. During the third quarter of 2005, Tidel Technologies committed to selling its cash security business, which includes the company's TACC and Sentinel products. Tidel has retained Stifel, Nicolaus & Company Inc. to assist with that proposed sale.

"I suspect that Tidel's cash security business, which is quite profitable on a standalone basis, will be sold off separately in early 2006, and then the shell's remaining assets will be divested," Tremont's Ditzion said.

A gamble worth taking

The sales forces for the FI- and ISO-geared ATMs will remain separate, Lozier said, although some overlap will be inevitable. This is where some conflict could arise.

"The biggest risk will be in the domestic market, when it comes to culture," he said. "We are not integrating the Tidel sales model into the NCR sales model, and we're doing that for a reason."

Although Lozier said he and Hudson have been on the same page every step of the way, it's going to take a while for every one of NCR's 30,000 employees to buy into the concept.

NCR's goal is to promote the Tidel EasyPoint brand without cannibalizing the benefits Tidel brings to the table - developing advanced-function ATMs at a low cost.

Ditzion said only time will tell if the deal is a success.

"If the EasyPoint ATM brand is ultimately successful, NCR's $10.2 million initial investment could result in a big payoff. If not, $10.2 million isn't the end of the world for a $6.25 billion company like NCR and is probably a gamble worth taking."