6 Things To Know About ScanSource's Proposed Acquisition Of POS Portal

The Payments Channel Expert

ScanSource last week said it plans a $144.9 million acquisition of payment devices distributor POS Portal in a move that combines the former's strong solution provider relationships with the latter's payments channel expertise.

Greenville, S.C.-based distributor ScanSource cited POS Portal's specialization in point-of-sale services for SMB customers as a major point of emphasis behind the acquisition. As merchants continue the often-slow transition to EMV payment terminals, both companies believe they will be able to establish the largest and most sophisticated configuration and services platform in the payments industry by joining forces.

The POS Portal deal would mark the sixth acquisition made by ScanSource in the past three years, including an $83.6 million deal to purchase master agent and recurring revenue powerhouse Intelisys, which closed June 27.

Here are six points of interest involving ScanSource's proposed purchase of Sacramento, Calif.-based POS Portal.

ScanSource Had Been Eyeing POS Portal For A While

Four years ago, around the time wide-scale implementation of EMV began, ScanSource was interested in acquiring POS Portal. But POS Portal's CEO, Buzz Stryker, was not interested in selling.

As a result, ScanSource began building out its Worldwide Barcode, Networking and Security business segment aimed at providing the retail channel with EMV-enabled products. However, POS Portal was enjoying quick success in that market due to its payments channel expertise, and Stryker said the company wanted to further advance its growth opportunities in the retail channel, where ScanSource already had excellent solution provider relationships.

"We were doing fine, but these guys at POS Portal were doing things remarkably well and advancing the market at a faster rate," ScanSource CEO Mike Baur said. "It became obvious that we should combine our efforts. ScanSource plus POS Portal we believe brings the largest and most sophisticated platform, from a configuration and service standpoint, in the payments industry. POS Portal is much broader in their capabilities than ScanSource. So this is a case of one plus one equals about 5.5."

Stryker and POS Portal COO Scott Agatep will join and help lead the ScanSource payments business as POS Portal is integrated into the Worldwide Barcode, Networking and Security division.

A Financial Boon For Both Sides

Although the deal is not slated to be completed until the end of July, the all-cash acquisition – which includes an earn-out payment of up to $13.2 million – is expected to increase ScanSource earnings per share in the first year, one-time acquisition costs notwithstanding.

POS Portal is projected to generate $110 million in net sales through the first year after closing, with an estimated EBITDA margin in the "low teens," according to the company. ScanSource believes POS Portal's profile makes for a strong complement to its existing POS business.

"This is a strong business that's had incredible growth, not only the top line but also the bottom line," ScanSource's Baur said. "It'll certainly be positive for our overall profitability."

POS Portal Adds Broad SMB Reach To ScanSource's Portfolio

The payments channel that POS Portal services is primarily made up of payment processing resellers and independent sales agents that reach a wide variety of SMB end users. Essentially, any merchant that accepts credit cards is considered a prospect.

Small merchants, which typically buy stand-alone countertop terminals and are often too small for POS systems, make SMB markets largely hardware-centric, as opposed to the larger merchant market and retail channel. POS Portal's payments channel value is rooted in its ability to provide the data and encryption keys required by countertop terminals, which include complex software stacks, before they can be shipped.

"It's a fairly meticulous process piece of work to get the terminal correctly set up. … POS Portal already had all those partnerships and capabilities in place," Stryker said. "All we needed to really make things fly is get our name out front of all those VARs. The purpose of coming together from that standpoint is obvious."

Unique Capabilities

The combination of POS Portal's payments channel roots with ScanSource's presence in the solution provider channel already make the pairing formidable.

Stryker noted that he sees a great need for solution providers to have a single place to shop for payment processors and gateway-ready devices. ScanSource and POS Portal believe their partnering has created a unique proposition for solution providers.

"I'm not sure I'm aware of another player that has brought the VAR channel together with POS Portal's configuration and service capability," Stryker said.

Alleviating Independent Software Vendor Concerns

The retail packages POS Portal offers to its partners – Portal Advantage and SalesGuard – add another valuable component to this acquisition.

When it comes to EMV-enabled technology, some solution providers and ISVs have concerns about reselling that hardware because of the perceived security liability attached to it. POS Portal gives partners the option to either resell a device and service it directly with a merchant, or POS Portal can sell the merchant its product in partnership with the solution provider and POS Portal would handle the service and support.

"As we're talking to these resellers, they might be doing five units a month and they just don't want to get in the business, or they might be doing several hundred units a month and they want to build an infrastructure and be in the resale and service business for this hardware," Stryker said. "We've got a program that fits either party."

ScanSource believes that allowing partners to choose which method suits their business model best will further accelerate its growth.

Partners Can Expect To Benefit

While large retailers have the ability to transition to EMV relatively quickly, millions of smaller companies have not yet made the jump.

By acquiring POS Portal and investing a substantial amount of capital in expanding its payments channel capabilities, ScanSource expects businesses will be able to make the EMV switch faster because of POS Portal's reputation as a trusted payments partner that can provide and service intricately configured payment devices.

That, in turn, would also benefit solution providers.

"Peak [UpTime] is delighted to see ScanSource furthering its portfolio with the acquisition of POS Portal," said Gordon Martin, president of ScanSource partner Peak UpTime. "As digital transformation continues to drive integrated systems and corresponding security requirements, having a secure payments alternative with ScanSource adds value for solution providers. As a leader in point-of-sale, ScanSource continues to strengthen its portfolio, and has the unique ability to bridge with secure networks and compute options."