--NCR buys retail-IT company Retalix as part software-focused
strategy
--Company projects retail is on cusp of upgrade cycle
--Others have bought similar groups for less lately
By Joan E. Solsman
NCR Corp. (NCR), with its $650 million pact to buy
retail-software company Retalix Ltd. (RTLX), took a big step closer
to becoming a digital-age update of the cash-register business it
was founded upon more than century ago.
The company is betting on a recovery in retailer spending on
checkout technology, but analysts note this deal rang up at a high
price.
NCR, now known largely for its automated teller machines, is
evolving into more software offerings in broader sectors outside
its stronghold of banks, a strategy aimed at strengthening both its
diversification and profitability.
Last year's $1.2 billion purchase of Radiant Systems Inc.
brought NCR a maker of kiosks and technology systems for
restaurants and hotels. With Retalix, NCR positions itself as the
leader in retail checkout as well, gaining customers like Carrefour
S.A. (CA.FR) and Tesco Corp. (TESO) that rank among the biggest
merchants in the world.
Yet NCR's sales to retailers have been soft lately, with
retail-segment revenue expected to decline this year. Store
operators have held off upgrading self-checkout lanes and other
transactional technology since a surge in replacements five years
ago as they grappled to understand how mobile payments and Internet
shopping fits into brick-and-mortar models.
NCR has been noting signs of a pent-up investment cycle for
retail customers. Momentum both in orders and backlog is strong,
the company says, and it believes most retail point-of-sale systems
in the U.S. will be upgraded the next three years.
In a sign the upswing has begun, it inked a deal to expand its
self-checkout partnership with Wal-Mart Stores Inc. (WMT), the
world's biggest retailer, earlier this month.
However, the company's confidence in a retail turnaround may
have led it to overpay for Retalix, judging by the prices others
have agreed to spend to take over similar companies recently.
For one, Micros Systems Inc. (MCRS) bought a U.K. maker of IT
systems for convenience stores, gas stations and pubs at the end of
May. The target, Torex Retail Holdings Ltd., fetched a purchase
price of GBP119.9 million, which translated to almost $185 million
when it closed.
Micros Systems estimated Torex booked nearly that much in
revenue the same fiscal year. It also estimated Torex would have
contributed nearly $184 million to Micros revenue in its fiscal
year--which ended a month after the deal closed--had Torex been
part of the company the whole time.
NCR, meanwhile, plans to pay more than double Retalix's
projection for revenue this year.
More recently, private-equity firm New Mountain Capital LLC
secured a buyout deal for JDA Software Group Inc. (JDAS), which
makes software to help retailers keep shelves stocked and handle
back-office functions. The deal pegs JDA's value at $1.9 billion, a
multiple of about nine or 10 times analysts' estimates for next
year's earnings before interest, taxes, depreciation and
amortization.
NCR is playing a much higher multiple for Retalix: the $650
million purchase price is 17 times next year's Ebitda.
"NCR paid a steep price," Oppenheimer analyst Ian Zaffino noted,
saying the company now needs to be just as savvy with Retalix's
integration as it was with Radiant's.
In recent trade, shares in NCR were up 0.8% at $23.95, while
those in Retalix were up two cents at $29.52 following a 35% surge
Wednesday.
Write to Joan E. Solsman at joan.solsman@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires