NCR Corp Announces Plan to Split Into Two Independent Companies


Offer overview

On September 15, 2022, NCR

Corporation (NYSE: NCR, $21.99, market cap: $3.0 billion), a leading provider of business technology for retail stores, restaurants and self-directed banking, announced that its board of directors has unanimously approved a plan to in two independent, publicly traded companies – CommerceCo (RemainCo) focused on digital commerce and ATMCo (Spin-Off) on ATMs. The separation is intended to be structured tax-free and is aimed at the end of 2023.
Earlier on February 8, 2022, NCR Corporation began an extensive strategic review process with the help of outside advisors to evaluate a full suite of strategic alternatives to increase shareholder value.

Upon completion of the proposed spin-off, CommerceCo (RemainCo) will continue with its Retail, Hospitality, Merchant Services and Digital Banking businesses. On the other hand, ATMCo (Spin-Off) will focus on its global ATM-as-a-Service and ATM network business. The separation transaction will take place after customary conditions have been met, including the effectiveness of appropriate filings with the US Securities and Exchange Commission and the completion of audited financials. NCR’s board of directors has appointed BofA Securities, Inc., Goldman Sachs & Co. LLC and Evercore Group LLC as financial advisors during the strategic review process. While the company is reviewing key aspects of CommerceCo and ATMCo, including potential cost savings opportunities, management teams, boards of directors, capital structures and capital return policies, the board remains open to all strategic alternatives until the closing of the transaction, including a sale of the entire company. or individual segments.

Reason for the deal

As noted in our potential announcement report on 2/22, NCR has continued to shift from a hardware-centric brand to a software-led-as-a-service company in recent years with a greater shift toward recurring revenue streams. However, NCR’s share price did not reflect the significantly improved operating performance. Therefore, the company initiated a strategic review to explore various options that will revalue the company and maximize shareholder value. Since the announcement of the strategic review, the company has received acquisition stakes from several potential buyers, such as Veritas Capital and Apollo Group. On 9/15, NCR announced the end of the sale process and its plan to split into two public companies. According to Frank R. Martire (Executive Chairman of the Board of Directors of NCR), the company has developed material interest in selling the entire company and interest in several individual segments during the strategic review process. Recently, it became increasingly clear to the Board of Directors that, given today’s funding markets, management would not be able to complete a complete corporate transaction that reflects an appropriate and acceptable value to NCR’s shareholders. The market reaction was unfavorable and NCR’s share price fell ~20.3% on September 16 after the company announced its proposed split into two companies. However, we believe that the current share price has largely accounted for the negatives related to the cancellation of the sale plan, and the proposed spin-off could unlock long-term shareholder value.

Given the improvements to its business in recent years, the company believes that both companies will be well positioned to succeed independently after the spin-off. The spin-off is likely to create two leading, independent, publicly traded companies with different growth and profitability strategies, business characteristics, investment profiles and an extensive runway for growth in both companies with attractive addressable markets. The separation will give CommerceCo (RemainCo) and ATMCo (Spin-Off) the flexibility to optimize capital structures and capital deployment priorities and the investment community’s ability to value each company independently, which the company expects will result in optimized total shareholder returns.

Following the spin-off, CommerceCo (RemainCo) will be a leading digital commerce company at the forefront of secular evolution in the retail, hospitality and digital banking sectors. The digital commerce company will be a growth company positioned to leverage NCR’s software-led model to continue to transform, connect and run global retail, hospitality and digital banking. It is a global leader (No. 1 POS software provider and self-checkout provider) in integrated software platforms, services and hardware in multiple attractive end markets and geographies. The company has a large customer base at blue chip retailers, restaurants and banks. CommerceCo’s software-led business model is likely to drive operational efficiencies and margin expansion opportunities in the long run. It will maximize common solutions to drive innovation and increase operational efficiency.

On the other hand, ATMCo (Spin-Off ) will be a global leader (#1 provider of multi-vendor ATM software applications and middleware) in self-service banking and ATM networks, with superior technology and scale compared to competitors. The ATM business will be a cash-generating company that will focus on providing ATM as a Service to a large, installed customer base at banks and retailers. It will build on NCR’s leadership in self-service banking and ATM networks to meet global demand for ATM access and leverage new ATM transaction types, including digital currency solutions, to drive market growth . As a result, ATMCo’s asset-light model with limited required reinvestment and sustainable cash flow generation is likely to result in a return of capital for shareholders.

company description

NCR Corporation (mother)

NCR Corporation (NYSE: NCR) is a leader in transforming, connecting and running technology platforms for self-driving banking, retail and dining. Headquartered in Atlanta and employing 38,000 people worldwide, NCR operates in five segments: Payments & Network, Digital Banking, Self-Service Banking, Retail and Hospitality. The Payments & Network segment provides credit unions, banks, digital banks, fintech, stored value debit card issuers and other financial services providers to consumers with access to their retail-based ATM (ATM) network. Digital Banking solution helps financial institutions implement their digital platform for various transactions. The Self-Service Banking segment offers a range of ATM hardware and software, related installation, maintenance and managed professional services. The Retail segment provides software-defined solutions to retail customers. The hospitality segment provides technology solutions such as table service, quick service and fast casual restaurants of all sizes to the hospitality industry. The company reported total revenue of $7.2 billion in FY21. After the spin-off, CommerceCo (RemainCo) will include the Retail, Hospitality, Merchant Services and Digital Banking businesses. As of September 2022, the company has generated LTM revenues of ~$4.0 billion, and LTM Adj. EBITDA of ~$0.6 billion with LTM Adj. EBITDA margin of ~16%.

ATMCo (spin off)

The ATMCo will be a cash-generating company that will focus on providing ATM as a Service to a large, installed customer base at banks and retailers. The main customers of the company’s ATM network are Capital One
Citi Group, Walgreens
CVC Farmacy, Varo, etc. While in the Self-Service Banking business, ATMCo’s main clients are HSBC
Bank of America, AIB, Wells Fargo
, CIBC, ATB, ANZ, Lloyds, Liberty Bank, PNC Bank, Credit Agricole, National Bank of Egypt, Santander, etc. In addition, ATMCo is expected to build on NCR’s leadership in self-service banking and ATM networks to Meeting the global demand for ATM access and leveraging new types of ATMs, including digital currency solutions, to drive market growth. In addition, the company will continue to shift to a strong recurring revenue model to drive stable cash flow and shareholder return. As of September 2022, the company has generated LTM revenues of ~$3.8 billion, and LTM Adj. EBITDA of ~$0.7 billion with LTM Adj. EBITDA margin of ~18%.



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