Deal Overview

On September 15, 2022, NCR

NCR
(NYSE: NCR, $21.99, Market value: $3.0 billion), a leading provider of enterprise technology to self-directed retail, dining and banking, announced that its board of directors has unanimously approved a plan to publicly separate NCR into two independent divisions. Traded Companies – Comersco (RemainCo) focused on the digital commerce business and ATMCo (Spin-Off) on the ATM business. The chapter aims to be regulated in a tax-exempt manner and targets the end of 2023.
Earlier on February 8, 2022, NCR commenced a comprehensive strategic review process with the help of external advisors to evaluate a full range of strategic alternatives to enhance shareholder value.

After completion of the proposed spin-off, Commersco (RemainCo) will continue its retail, hospitality, merchant 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 severance transaction will follow meeting customary requirements, including the effectiveness of appropriate filings with the US Securities and Exchange Commission and completion of audited financial statements. The NCR Board of Directors has appointed BofA Securities, Inc. and Goldman Sachs & Co. LLC and Evercore Group LLC as financial advisors during the strategic review process. Although the company is evaluating key aspects of CommerceCo and ATMCo, including potential cost saving opportunities, management teams, boards, capital structures, and capital return policies, the board remains open to all strategic alternatives until transaction closes, including sale for the whole company or individual sectors.

Justification for the deal

As noted in our Potential Advertising Report on 2/22, NCR has continued to transform from a hardware-focused brand to a software-as-a-service-led company with a higher shift to recurring revenue streams in recent years. However, NCR’s stock price did not reflect significantly improved operating performance. As a result, the company began a strategic review to explore different options that would classify the business and increase shareholder value. Since the strategic review was announced, 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 and its plan to split into two public companies. According to Frank R. Martyr (Chief Executive Officer of the Board of Directors of NCR), during the strategic review process, the company received material interest in selling the entire company and interest in various individual segments. Recently, it has become increasingly clear to the Board of Directors that, given the current funding markets, management cannot offer a complete deal to the company that reflects appropriate and acceptable value to NCR shareholders. The market reaction was reverse, and NCR’s stock price fell nearly 20.3% on 9/16 after the company announced its proposed separation into two companies. However, we believe that the current share price has largely factored in the downside of canceling the sell plan, and the proposed spin-off could unlock long-term shareholder value.

Given the improvements that have been made to its business in recent years, the company believes that the two companies will be well positioned to succeed independently after the split. A separate offering is likely to result in two industry-leading, independent, publicly traded companies with distinct growth and profitability strategies, business characteristics and investment profiles, and a broad histogram for growth in both companies with attractive addressable markets. The separation will allow CommerceCo (RemainCo) and ATMCo (Spin- Off) flexibility to optimize capital structures, capital deployment priorities and the ability of the investment community to independently evaluate each business, which the company expects will improve overall shareholder returns.

After Spin-Off, CommerceCo (RemainCo) will be a leading digital commerce company at the forefront of secular development in the retail, hospitality and digital banking industries. The digital commerce company will be a growing company in a position to leverage the software-led NCR model to further transform, connect and manage global retail, hospitality and digital banking. It is a global leader (the premier POS software provider and self-service payment provider) in integrated software, service and hardware platforms across multiple attractive markets and geographies. The company has a large proven customer base across retailers, restaurants and banks. The business model led by Commersco is likely to increase operational efficiencies and margin expansion opportunities in the long run. It will maximize joint solutions to drive innovation and enhance operational efficiency.

On the other hand, ATMCo (Spin-Off) will be a global leader (the number one provider of multi-vendor ATM software applications and middleware) in self-service banking and ATM networks, with superior technology and size compared to competitors. The ATM company will be a cash-generating company that aims to focus on providing ATMs as a service to a large and proven customer base across banks and retailers. It will build on NCR's leadership in self-service banking and ATM networks to meet the global demand for ATM access and leverage new ATM transaction types, including digital currency solutions, to drive market growth. Thus, ATMCo's light asset 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 (Original)

NCR Corporation (NYSE: NCR) is a leading company in transforming, interconnecting and operating self-directed banking, convenience store and restaurant technology platforms. Headquartered in Atlanta, NCR employs 38,000 people globally, and operates through five segments: payments and networking, digital banking, self-service banking, retail, and hospitality. The Payments and Networking segment provides credit unions, banks, digital banks, fintech, stored value debit card issuers, and other consumer financial service providers with access to a retail-based Automated Teller Machine (ATM) network. The digital banking solution helps financial institutions to implement their digital platform for various transactions. The Self-Service Banking segment offers a line of ATM hardware and software, related installation and maintenance, and professional managed services. The Retail segment provides software-defined solutions to customers in the retail industry. The hospitality sector offers technical solutions, such as table service, express service, and casual fast restaurants of all sizes to the hospitality sector. The company reported total revenue of $7.2 billion in fiscal year 21. Post-Spin-Off and CommerceCo (RemainCo) will include retail, hospitality, merchant services, and digital banking. As of September 2022, the company has generated an estimated limited-term revenue of $4.0 billion, LTM Adj. EBITDA ~ $0.6 billion with LTM Adj. EBITDA margin ~16%.

ATMCo (transverse)

ATMCo will be a cash-generating business positioned to focus on providing ATMs as a service to a large and proven customer base across banks and retailers. Among the main customers of the ATM network of the company is Capital One
COF
City Group, Greens
WBA
Kroger
K
, CVC Farmacy, Varo, etc. While working in the self-service banking business, ATMCo's main clients include HSBC
HSBC
Bank of America, AIB, Wells Fargo
WFC
, CIBC, ATB, ANZ, Lloyds, Liberty Bank, PNC Bank, Credit Agricole, National Bank of Egypt, Santander, etc. Furthermore, ATMCo is expected to build on NCR's leadership in self-service banking and ATM networks to meet the global demand for ATM access and leverage new ATM transaction types, including cryptocurrency solutions, to drive market growth. Furthermore, the company will continue to shift to a highly recurring revenue model to achieve steady cash flow and return on equity capital. As of September 2022, the company has generated a limited-term revenue of approximately $3.8 billion, LTM Adj. EBITDA ~ $0.7 billion with LTM Adj. EBITDA margin ~18%.