NCR Corp Announces Plan To Separate Into Two Independent Companies

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Deal Overview

On September 15, 2022, NCR

NCR
Corporation (NYSE: NCR, $21.99, Market Capitalisation: $3.0 billion), a leading enterprise technology provider for retail stores, restaurants, and self-directed banking, announced that its Board of directors has unanimously approved a plan to separate NCR into two independent publicly traded companies – CommerceCo (RemainCo) focused on digital commerce business and ATMCo (Spin-Off ) on ATM business. The separation is intended to be structured in a tax-free manner and is targeted for the end of 2023.
Earlier on February 8, 2022, NCR Corporation commenced a comprehensive strategic review process with outside advisors’ assistance to evaluate a full range of strategic alternatives to enhance shareholder value.

NCR Price Performance

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After completing 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 follow the satisfaction of customary conditions, including the effectiveness of appropriate filings with the US Securities and Exchange Commission and the completion of audited financials. The NCR Board of Directors engaged BofA Securities, Inc., Goldman Sachs & Co. LLC, and Evercore Group LLC as financial advisors during the strategic review process. Although the company is assessing 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 the completion of the transaction, including a sale of the whole company or individual segments.

Spin-Off Details and Top 5 Shareholders

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Deal Rationale

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 with a higher shift to recurring revenue streams in recent years. However, NCR’s stock price did not reflect the substantially improved operational performance. Due to this, the company initiated a strategic review to explore various options that will rerate the business and maximize shareholder value. Since the strategic review announcement, the company received takeover interests from various potential buyers, such as Veritas Capital and Apollo Group. On 9/15, NCR announced the end of the sale process and its plan to separate into two public companies. According to Frank R. Martire (Executive Chairman, NCR Board of Directors), throughout the strategic review process, the company received material interest in a whole company sale and interest in various individual segments. Recently, it became increasingly clear to the Board that, given the current financing markets, management could not deliver a whole company transaction that reflects an appropriate and acceptable value for NCR shareholders. The market reaction was adverse, and NCR’s share price dropped by ~20.3% on 9/16 after the company announced the proposed separation into two companies. However, we believe that the current stock price has factored in the negatives relating cancellation of the sale plan to a large extent, and the proposed Spin-Off could unlock shareholder’s value in the long term.

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

Post Spin-Off , CommerceCo (RemainCo) will be a leading digital commerce business at the forefront of secular evolution in retail, hospitality, and digital banking industries. The digital commerce company will be a growth business positioned to leverage NCR’s software-led model to continue transforming, connecting, and running global retail, hospitality, and digital banking. It is a global leader (#1 Provider of POS software and Provider of self-checkout) in integrated software platforms, services, and hardware across multiple attractive end markets and geographies. The company has a large installed customer base across blue chip retailers, restaurants, and banks. CommerceCo’s software-led business model will likely drive operating efficiencies and margin expansion opportunities in the long run. It will maximize common solutions to drive innovation and boost 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 company will be a cash-generative business positioned to focus on delivering ATM as a Service to a large, installed customer base across 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. Consequently, ATMCo’s asset-light model with limited required reinvestment and sustainable cash flow generation will likely result in a capital return to shareholders.

Key Data

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Company Description

NCR Corporation (Parent)

NCR Corporation (NYSE: NCR) is a leader in transforming, connecting and running technology platforms for self-directed banking, stores, and restaurants. Headquartered in Atlanta with 38,000 employees globally, NCR operates through five segments: Payments & Network, Digital Banking, Self- Service Banking, Retail, and Hospitality. The Payments & Network segment offers credit unions, banks, digital banks, fintech, stored-value debit card issuers, and other consumer financial services providers access to its retail-based automated teller machines (ATM) network. Digital Banking solution helps financial institutions implement their digital platform for various transactions. Its Self-Service Banking segment offers a line of ATM hardware and software, related installation, maintenance, and managed professional services. The Retail segment offers software-defined solutions to customers in the retail industry. The hospitality segment offers technology solutions, such as table-service, quick-service, and fast casual restaurants of all sizes to the hospitality sector. The Company reported total revenue of $7.2 billion in FY21. Post-Spin-Off , CommerceCo (RemainCo) will include the Retail, Hospitality, Merchant Services, and Digital Banking businesses. As of September 2022, the business has generated LTM Revenue 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-generative business positioned to focus on delivering ATM as a Service to a large, installed customer base across banks and retailers. The company’s major ATM network customers include Capital One
COF
, Citi group, Walgreens
WBA
, Kroger
KR
, CVC Farmacy, Varo, etc. While in the Self-Service Banking business, ATMCo’s major customers 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. Moreover, ATMCo is expected to 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. Furthermore, the company will continue shifting to a highly recurring revenue model to drive stable cash fl ow and shareholder capital returns. As of September 2022, the business has generated LTM Revenue of ~$3.8 billion, and LTM Adj. EBITDA of ~$0.7 billion with LTM Adj. EBITDA margin of ~18%.

Organization Structure Pre Spin-Off

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Post Spin-Off

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