PMT Services, Inc.

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PMT Services, Inc.

3841 Green Hills Village Drive
Nashville, Tennessee 37215
(615) 254-1539
Fax: (615) 254-1548

Public Company
Employees: 330
Sales: $284.2 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: PMTS
SICs: 7389 Business Services, Not Elsewhere Classified

PMT Services, Inc. is one of the largest independent service organizations in the United States that markets and services electronic credit card authorization and payment systems to merchants, including sale and leasing of related equipment, catering primarily to small retail, wholesale and professional businesses located throughout the United States. The company provides services to merchants pursuant to contracts between the company and various processing banks.

Industry Overview

In 1997, transactions by cash or check made up approximately 75 percent of the volume of all sales at the point of sale, leaving 25 percent for credit cards, debit cards, and other electronic commerce. Since 1994, the number of debit-capable terminals shipped has exceeded the number shipped in the 15 years previous to that time. As the labor-intensive costs of processing paper checks and physical money transactions grows, analysts predict the electronic transaction processing industry will grow an average of 15 percent annually through the year 2005 as banks issue more and more credit and debit cards.

Private Company, 1984-93

The company was founded in 1984 by Richardson M. Roberts and Gregory S. Daily, current chairman and president, respectively. The two met when both had previously worked at Comdata Holdings Corporation in 1982, a fleet management company located in Brentwood, Tennessee. They both also went to work at Concord EPS, an independent service organization in Memphis, where they learned how to do credit card authorizations. Together, the two started a company that assisted truck drivers in securing money transfers while they were out on the road. Working with companies that had fleets of five trucks or less, the two were successful in not competing with their previous employer, Comdata, who serviced large-fleet companies. The company, in 1997, was a major competitor of Concord.

In 1986, PMT became an independent service organization for Rocky Mountain Bankcard, a bank credit card company which was eventually purchased by First Bank System, Inc. From 1987 to 1990, the company was financed with venture capital from Nashville, Tennessee-based Massey Burch, which provided $3.5 million. The company also began a business relationship with Omaha, Nebraska-based First National Bank, which eventually went on to handle over 50,000 of the companys accounts by 1996.

Through a fortuitous connection Roberts made at a cocktail party with George M. Miller, president and CEO of Sirrom Capital, the company received $2 million in venture capital from Sirrom. With the money, the company purchased its first portfolio from South Street Bank of Boston, Massachusetts, receiving half of the banks accounts. The other half went to Nabanco, another independent service organization.

The company was running among the most competitive merchant acquirers in the credit card industry including megacorporations such as First Data Corporation, Nova Information Systems, National Data Corporation, and First USA Paymentech. The bigger companies service Tier 1 companies, large corporations doing more than $100,000 per year on credit and debit cards; companies such as Sears, Mervyns, Robinsons May, and The Broadway. PMT Services contracts with Tier 2 and Tier 3 companies, smaller merchants doing less than $100,000 per year in electronic transactions. Every time a card is swiped through one of PMT Services terminals, the company makes 34 cents. With the company processing somewhere between 125 million and 135 million transactions a month, and with charge or debit volume totaling nearly $14 billion per year, revenues in 1993 reached $62 million, with a net income of $1.8 million.

Going Public, 1994-Date

The company went public in 1994 when, in August of that year, an initial public offering of approximately 3.5 million shares at $8 per share was completed, which generated an income of approximately $15.9 million. Revenues reached $97.2 million and net income hit $3.2 million.

In 1995, the company began purchasing merchant portfolios which gave the company the right to service specific merchants under contract to processing banks for electronic authorization and payment processing. Nine of these merchant portfolios were purchased in 1995. The first, acquired from Chicago, Illinois-based BankCard America, Inc., was purchased in April for approximately $7.7 million. Two more portfolios were purchased several months later, in July; these were from TermNet Merchant Services, Inc. and Clearwater, Florida-based Consumer Payment Services, Inc. The former, which brought the company approximately 4,000 merchant accounts at a $500 million annual charge volume, was paid approximately $6.2 million and the latter, which brought the company nearly 5,600 merchant accounts at a $350 million annual charge volume, close to $6 million.

A third portfolio was acquired in October of that year. Imperial Bank sold the company the portfolio for approximately $8.7 million. That same month, the company also underwent a second public offering of over 2.2 million shares, bringing in income of nearly $40.8 million. In mid-December of that year, the company split its stock in a two-for-one transaction. Revenues reached $139.6 million and net income of $5.5 million.

In March 1996, with some of the proceeds from its successful second public offering earlier in the year, the company purchased a merchant portfolio from Kansas City, Missouri-based United Missouri Bank, N.A. (UMB) for $13.5 million. The portfolio also serviced approximately 15,000 accounts. A strategic alliance was also set up with UMB Financial Corporation, a $6.3 billion holding company, in which the bank would continue to service those accounts generated at its banking locations through its own alliance with Hackensack, New Jersey-based First Data Corp.

The following month, in April, the company made a third public offering, with over 3.9 million shares of stock being sold and generating income of approximately $100 million. That same month, the company purchased a second merchant portfolio from Bankcard America for approximately $6.3 million. In mid-May, the companys stock split again, but this time three-for-two. The company also purchased four merchant portfolios in 1996.

During fiscal 1996, the company began issuing common stock to acquire operating businesses with both existing merchant portfolios and sales organizations capable of generating new accounts. In July, the company acquired Martin Howe Associates, Inc. in exchange for approximately 594,000 shares of common stock. The acquisition of Martin Howe, under the direction of Jack Martin, gave the company an additional annualized charge volume of $1 billion, a sales force with an established presence in the professional sports market, and wireless radio technology for applications in the National Football League, the National Hockey League, the National Basketball Association, the Professional Golfers Association, major league baseball, and automotive racing. The following month, in August, the company issued more stock to acquire all the outstanding stock of Chicago, Illinois-based Data Transfer Associates, Inc. Data Transfer CEO John Rante brought a Midwestern U.S. sales force that produced 175 new accounts monthly and a merchant portfolio worth approximately $400 million.

In September 1996, the company entered into an agreement with Kentucky-based National Processing Co., the operating company of National Processing, Inc., the second largest merchant processing company of MasterCard and Visa transactions in the United States at the time, in which National would provide the company with merchant card authorization and back-end processing services. National serviced Tier 1 merchants such as Kmart Corporation and Wal-Mart, and had over 125,000 accounts and $80 billion in sales at the time of the agreement.

December saw the company issue another 424,000 shares of stock to acquire Tampa, Florida-based Fairway Marketing Group, Inc. Under the direction of CEO Eugene Skip Barker, Fairway brought the company a $700 million merchant portfolio and approximately 200 new accounts per month. Revenues for the year reached $214.9 million and net income was $10.3 million. According to the Nilson Report, the company jumped from 17 to 12 on the list of merchant-acquiring companies in 1996 and stayed firmly in the top five for non-bank acquirers. The other four were First Data Corp., National Data Corp., First USA Paymentech, and Nova Information Systems.

Company Perspectives

PMT Services, Inc. is an independent service organization which markets and services electronic credit card authorization and payment systems to small retail and professional businesses located throughout the United States. PMTs account portfolio has grown through the internal development of accounts using telemarketing and a field sales force as well as through the purchase of account portfolios.

From 1995 to 1997, the company grew faster than any other company in its market, reaching an unprecedented 200 million transactions per year with approximately $12 billion in an-nualized charge volume (up 70 percent from 1996). The company quadrupled internal account generation in 1997 and enlarged its direct sales staffthrough the strategically targeted acquisitions of Martin Howe, Data Transfer Associates, and Fairway Marketing in 1996, as well as four other companies by mid-1997from approximately 100 people at the end of 1996 to over 300 by the end of the following year. The acquisitions also gave the company an entry into every major market in the United States.

The company made a total of 11 acquisitions in fiscal 1997, two of them in late January. The first acquisition was Bancard Systems, Inc., under the leadership of Michael M. McCormick, in a 3.1 million share transaction. The second came three days later when Retail Payment Services, Inc. was acquired for another 567,000 shares of common stock. Irvine, California-based Bancard Systems brought an annualized charge volume of nearly $1 billion to the company, with approximately 11,000 merchant accounts, and was producing approximately 500 new accounts per month, significantly expanding the companys presence on the West Coast. McCormick also joined the companys board of directors.

IMA Bancard, Inc., under the direction of president Joyce Cook, was acquired in March, followed by CVE Corporation, Inc. in April. IMA brought the company a southeastern U.S. sales force, a merchant portfolio worth approximately $300 million in annualized charge volume, and approximately 2,000 new merchant accounts. The acquisition of the Omaha, Nebraska-based CVE Corp., under the direction of CEO Mike Schneider, brought the company a $400 million merchant portfolio, with close to 4,000 merchant accounts, and was generating approximately 125 new accounts per month. CVE Corp. brought the additional benefit of enabling the company to become a full-service provider of check verification services, with over 3,500 accounts in that market alone.

Also in April, the company began a new marketing alliance with Salt Lake City, Utah-based Zions First National Bank, a subsidiary of Zions Bancorporation, purchasing an account portfolio from the banking giant which generated an annualized charge volume of $1 billion in 1996. By the end of the first quarter of 1997, the company had added over 11,000 merchant accounts to its portfolio for a total reaching over 105,000 accounts. The acquisition of the Zions portfolio gave the company an entrance into the bank portfolio acquisition market. The banking giant would also service the companys accounts through its 145 branches throughout Arizona, Nevada, and Utah.

In June the company acquired Eric Krueger, Inc. in exchange for approximately 579,000 shares of the companys common stock, and a month later acquired LADCO Financial Group, Inc., a leader in leasing credit card terminals to small businesses, for approximately 1.5 million shares in a $22.5 million stock swap. Traditionally, the company had sold the leases on the approximately one-third of the accounts it serviced to companies like LADCO. The acquisition of LADCO would allow the company to improve its ability to provide direct service to its accounts and to capture additional leasing revenues. The combined acquisitions of IMA Bancard, CVE, and the one other operating business which was acquired during the year, came to the company in exchange for nearly three million shares of stock. In addition to the acquisitions of seven companies in fiscal 1997, PMT Services also purchased nine merchant portfolios, moved from Brentwood, Tennessee, to new headquarters in Nashville, and grew to approximately 140,000 merchant accounts. Revenues for the year reached $284.2 million, a 32.3 percent increase over 1996, and net income reached $16.4 million, up 92.6 percent.

Early in fiscal 1997, the company acquired Boulder, Colorado-based Bancard Inc. and Youngstown, Ohio-based Retail Systems Consulting, Inc. Bancard added to the company a $2.2 billion annual volume in sales and 70 new employees, while Retail Systems added an income volume of $300 million per year.

In October of the same year, the company purchased Chats-worth, California-based American Heritage Bankcard, one of the largest remaining independent sales organizations in the merchant processing business. Nicholas Ferrante, president of American Heritage, brought with him an annual sales volume of $800 million, a merchant base of approximately 17,000 accounts, and 20 staffers.

Looking Ahead

In June 1998, PMT announced plans to merge with Atlanta-based NOVA Corporation, becoming a wholly owned subsidiary of the latter company. The $1.3 billion pooling of interests would create the fourth largest provider of merchant bankcard processing services in the United States, with a combined portfolio of 350,000 accounts worth $40 billion annually.

Further Reading

Jennings, Robert, PMT Services Buys 5,600 Merchant Accounts, American Banker, July 21, 1995, p. 12.

_____, PMT Services in Deal to Buy BankCard America Portfolio, American Banker, April 5, 1995, p. 12.

Piskora, Beth, PMT Services Buys Merchant Portfolio, American Banker, November 6, 1995, p. 17.

PMT Reports Earnings Leapt 92.5% in Quarter, American Banker, July 29, 1997, p. 28.

PMT Services Buys TermNet Portfolio, American Banker, July 17, 1995, p. 13.

PMT Services Inc., New York Times, January 28, 1997, p. C4(N)/D4(L).

PMT to Buy Bancard Systems, Wall Street Journal, January 28, 1997, p. B9(W).

Quittner, Jeremy, Deal for Merchant Accounts Puts PMT at Growth Goal, American Banker, January 30, 1997, p. 15.

_____, Hungry PMT Buys Another Independent Sales Firm, American Banker, April 9, 1997, p. 15.

_____, Little PMT Thrives Among Merchant-Acquiring Giants, American Banker, April 3, 1997, p. 1.

_____, Merchant Acquirer, Bulking Up, Buys UMBs Portfolio, American Banker, March 15, 1996, p. 11.

_____, National Processing in Deal with Small Vendor to Diversify Market, American Banker, September 13, 1996, p. 11.

_____, PMT Buying American Heritage, a Calif. ISO, American Banker, October 16, 1997, p. 16.

_____, PMT Buying Another Merchant Portfolio, American Banker, April 3, 1996, p. 15.

_____, PMT Buys Zions Merchant Portfolio, American Banker, April 25, 1997, p. 15.

Waxier, Caroline, Credit Crunch, Forbes, February 10, 1997, p. 202.

Daryl F. Mallett