Francisco Partners makes $3.4 bln bet on VeriFone

Francisco Partners, if it’s successful, will be the third private equity firm to own VeriFone Systems Inc.

The San Francisco buyout shop said April 9 that it was leading an investor group to buy the San Jose, California, payment-tech company in a deal valued at $3.4 billion, including debt.

British Columbia Investment Management Corp, a Canadian pension plan with $135.5 billion in managed assets, is also part of the investor group.

News of the sale caused VeriFone’s stock to rocket on Tuesday. VeriFone’s shares rose $7.78, or 52 percent, to $22.78, putting the market cap at about $2.5 billion.

“This is a big deal for Francisco Partners,” one banker said.

“It’s a good deal” for Francisco, a second banker said. “Lots of fat to cut” at VeriFone.

It’s unclear how much of VeriFone Francisco will own or how much it is contributing toward the $3.4 billion transaction. (Reuters valued the deal at $2.6 billion without debt.)

Francisco, however, would be the latest PE firm to own Verifone. Hewlett-Packard sold VeriFone to Gores Group in 2001. GTCR then recapped VeriFone a year later, in 2002, taking a majority stake. VeriFone went public in 2005.

VeriFone controls the point-of-sale hardware at half of U.S. retailers, the second banker said.

Before Francisco’s announcement, VeriFone’s stock had dropped nearly 70 percent from its peak in 2011, CNBC said. Its POS systems, including credit-card readers, have struggled, the story said. Revenue fell during the past two years with the company reporting $1.87 billion revenue for fiscal 2017, press reports say.

With Francisco, VeriFone will gain a knowledgeable payments investor. In fact, Francisco sold Hypercom, a provider of secure electronic payment and digital transaction technology, to VeriFone in 2010 for about $485 million.

“Francisco owned Hypercom at one point, so it knows the space,” the second banker said.

Francisco’s offer includes a go-shop, which enables VeriFone’s board to seek out alternative proposals until May 24.

Visa, a payments heavyweight, may come in and trump Francisco’s offer, the second banker said. But other sources discounted the chance that a strategic, or other PE firm, would produce a rival bid for VeriFone.

Francisco invests in technology and technology-enabled businesses.

The PE firm scored some huge wins in the payments sector last year. Vista Equity Partners scooped up PayLease from Francisco in 2017. Francisco also sold Paymetric to Vantiv for $525 million, making more than 6x its money, Buyouts said.

Francisco closed its fifth flagship fund at about $3.9 billion in 2017, Buyouts said. The firm’s fourth fund collected $2.875 billion in 2015.

Qatalyst Partners provided financial advice to VeriFone, while Sullivan & Cromwell is its attorney.

David Wah and Brian Gudofsky of Credit Suisse, along with Michael Carter and Michal Katz of Royal Bank of Canada, and Barclays provided financial advice to the Francisco investor group.

Adam Phillips, Robert Hayward, Robert Goedert, Sean Kramer, Anjna Mehta and James Beach of Kirkland & Ellis were legal advisers.

A VeriFone spokesman referred questions to the company’s release and regulatory filing. Francisco, BCI and Visa could not be reached for comment.

Action Item: Contact Vikram Varma, VeriFone’s general counsel, at vikram.varma@verifone.com

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