Publicly traded companies are valued at market value every day. And when quarterly results roll in, investors analyze the data, revenue and operating margins, often measuring success based on each earnings report.
For NCR Voyix, the sale of its digital banking platform to Veritas Capital for about $2.5 billion helps it avoid the vagaries of a volatile stock price. And as Doug Brown, chief product officer, and Brendan Tansill, executive vice president and president of NCR’s digital banking division, told Karen Webster, it’s a long-term investment.
And in the long term, they explained to Webster, the product and services roadmap includes a plan that spans years, not just quarters, and is based on a “digital first” mentality to help financial institutions bring digital capabilities to their branches.
The announcement and interview with Webster came on Tuesday (Aug. 6), the same day NCR Voyix reported its earnings results, which showed its digital banking business had annual revenue of $579 million and served 1,300 financial institutions across the United States.
The company’s supplementary disclosures showed that the segment’s average revenue per unit increased 6% year-on-year and that the number of active users increased 3% to 19.8 million.
NCR Voyix results show that digital banking revenue increased 9% to $154 million in the second quarter. The company’s total revenue on a consolidated basis decreased 7% to $876 million.
The proceeds from the sale, which will accrue to NCR Voyix, will be used to repay debt and improve operating leverage.
During the conference call with analysts, CEO David Wilkinson said that Digital Banking is “the only provider of a truly end-to-end offering across physical and digital channels.”
As for the decision to choose Veritas, Tansill noted to Webster on Tuesday that private equity (PE) firms tend to be painted with one of two brushstrokes:
Made a mistake? The private equity firm acquires a company and cuts costs to a minimum to maximize cash flow as much as possible, then seeks a quick exit, essentially passing the acquisition on to another buyer to get a quick return on capital.
In brush two, the PE brings in significant financial resources to accelerate the growth of the target company. These PEs invest in people and technology for the long term.
Veritas, Tansill said, is clearly in the second camp, having invested in technology companies for over two decades. The firm makes concentrated bets, with only about half a dozen holdings in each of its funds and billions of dollars invested in the success of those holdings.
“There was tremendous interest in the deal and we were in a strong position to select a strategic partner,” said Tansill.
Veritas also has the expertise to help with corporate spin-offs, Tansill said, which will prove critical in an environment where digital banking will continue to rely on Voyix’s retail accounting and financial services, while the company plans to hire 200 new staff before it is fully independent.
“This exercise will take up to a year,” Tansill told Webster.
In the meantime, as this transition process progresses, it is important that digital banking customers “feel no impact… they should feel the benefits of Veritas’ war chest, but not the pain of our attempt to separate from Voyix,” Tansill said.
Long-term perspective
The transition from public markets to private ownership will also enable an evolution of strategy and investment mentality.
“In a publicly traded company,” says Tansill, “there is a mindset that could limit the amount of capital spent each quarter because investors are comparing results each quarter and looking at performance from a shorter-term perspective.”
“In the private market,” he added, where no one looks at the numbers except Veritas’ board members, “we can invest a dollar today to be a better company in four or five years. The investment horizon is longer.”
Commercial banking will be a key focus area of digital banking, Tansill predicted, adding that the company will build or acquire operations in this segment more quickly than it would if the company were still listed.
Brown said Veritas shares the view that branches continue to play an important role as a key component of the retail banking experience, a view echoed by companies like JPMorgan and others expanding their physical presences.
As Brown noted, “community banking is still all about the concept of the relationship,” and digital-first initiatives simply serve to bring that continuum of omnichannel banking more into the present. Digital banking is also working on a rebrand, Tansill and Brown said.
Commenting on the $2.5 billion deal and the opportunity to operate as a standalone company in the evolving digital banking landscape, Tansill said: “We and Veritas see the world similarly, and that will be enormously helpful.”
