ess than three months ago, Mark Levenick, President and Chief Executive Officer of Carrollton, Texas-based Tidel Engineering Inc., sat at the end of a brightly polished conference table and once again beat a horse that would probably never be dead enough to suit him.

The topic was the near death and rebirth of one of the killer T's, Tidel, Triton and Tranax, manufacturers who dominate the low-end retail market for ATMs. In 2001, Tidel Engineering's largest customer, Philadelphia-based independent sales/service organization Credit Card Center (CCC), went under, leaving Tidel awash in millions in debt and with the loss of hundreds of missing ATMs.

Levenick spoke candidly about the damage not only to his company from the bankruptcy, but also to Dayton, Ohio-based NCR Corp.

Did Someone Say NCR?

But then in January, the wires buzzed with news that NCR, contingent upon a few legalities, would buy Tidel Engineering from Houston-based parent company Tidel Technologies Inc. for $10.2 million [See "NCR to Pay $10.2 Million for Tidel's ATM Business," The Green Sheet, March 14, 2005, issue 05:03:01]. Tidel Technologies is not being sold to NCR.

According to a Tidel regulatory filing, it could be the end of the year before the keys are handed over, but one milestone has apparently been met. A March 21 deadline set for agreement on NCR's employment of two "key" Tidel executives and the successful transfer of Tidel's lease has come and gone with both companies still part of the deal.

Tidel Engineering would not comment on any part of the arrangement beyond that spelled out in the filing. But some industry insiders said the deal makes sense for both companies.

One former Tidel distributor and NCR customer, who has left the business, said NCR has "struggled for years" to develop and engineer a low-end machine for the retail market. Tidel, on the other hand, has mastered that niche.

Russell Pandina Jr., Director of Operations for Spanaway, Wash.-based Bancard Services International Inc., said the deal's success depends on whether NCR allows Tidel to remain independent.

"Like all industries, the big dogs are taking over the other markets," Pandina said. "NCR couldn't develop a low-end machine for less than $30 million, so they're buying someone who can, and they're getting a lot out of the deal."

Tidel's Niche

Tidel is best known for its Timed Access Cash Controller (TACC), which it introduced in 1977. TACC was a simply engineered device, basically an under-the-counter safe with a timer that dispensed cash for retail employees, created to deter would-be thieves.

At that time, Tidel (then known as Tidel Systems) was a division of Southland Corp., now 7-Eleven Inc., so TACC was designed with the retailer in mind.

Tidel still manufactures its TACC line, the "centerpiece" of the company's manufacturing operation. More than 150,000 TACCs are currently on the market in retail locations throughout the world.

After the TACC, Tidel developed its AnyCard, recognized as the first dial-up ATM, during the early 1990s. Then, in the late 1990s, the company put out the Internet-linked Chameleon ATM. The advanced functionality of the Chameleon made it attractive to retailers, who wanted an ATM that could do more than just dispense cash, in the United States and abroad.

In many ways, the Chameleon was ahead of its time. One news report from "Internetnews" in 1998 stated: "The new machine would allow an ATM user, for example, to make a cash withdrawal, and then buy airline tickets and book a hotel reservation, all while receiving advertising messages in broadcast-quality video and audio."

Buyout Is Not a Surprise

Kartik Mehta is a Financial Analyst with Kansas City, Mo.-based Midwest Research Institute who covers both NCR and Diebold. Mehta said the acquisition of Tidel was expected.

"It offers (NCR) a solution for the off-premise market that they didn't have," Mehta said. "I think they will use those (Tidel) machines to help support their off-site presence in Europe."

Bancard's Pandina said Tidel's efforts to meet international market needs with its 3000 series of ATMs probably made it attractive to NCR.

"NCR has learned a lot about bringing something new to market; and getting these new machines that Tidel is putting out there would kick Diebold's butt. ... Diebold doesn't have anything new, except the Opteva, which is very expensive."

The 3000 series reads smart cards with embedded chips, which are taking off overseas as more and more countries move toward EMV-standard compliance.

Brad Lozier, Vice President of Product Management for NCR's Financial Solutions division, supported Mehta's and Pandina's observations.

"Tidel's strengths apply to both the U.S. and overseas markets," Lozier said. "Having the financial stability of NCR allows them to overcome the challenges they faced in the U.S. and internationally. They can do what they do internationally with NCR because they already have a strong name overseas."

Having that relationship with Tidel will help NCR, Mehta added, because NCR was never able to "fully develop" a low-end solution.

Ripe for the Deal

Even though Tidel was able to hold on for years after the fall of CCC in 2001, it never really overcame its losses. In 2000 and 2001, 70% of Tidel's ATM sales were to CCC. When CCC declared bankruptcy, Tidel had to write off $25 million, which crippled the company's growth and kept it from being all that it could have been, many insiders said.

Because of its debt, Mehta said, Tidel was looking for a way to cut its losses.

In a recent U.S. Securities and Exchange Commission filing, which lists financials for fiscal year 2002, Tidel's assets are $15.1 million and its liabilities are $23.7 million. Getting financial filings up-to-date by the close of the year is one contingency of the NCR-Tidel deal.

"There was an opportunity for NCR or Diebold to pick up the assets and have another presence in the market," Mehta said.

Bob Fincher, a former employee of Tampa, Fla.-based TBS First Inc., said the NCR-Tidel relationship has a lot of potential. But that potential will depend on how NCR plays its hand.

Now Vice President of Marketing for Louisville, Ky.-based NetWorld Alliance, ATMmarketplace's parent company, he remembers NCR's efforts in 1998 to strike up a similar deal with the late TBS First.

TBS First, which was founded by Ron Scaglione, came out with a modular cash dispenser geared toward the retail [industry] which was "revolutionary for its time," Fincher said. After NCR and TBS joined forces, that machine, with a few tweaks, became known as the NCR 5301. TBS First provided the software and sales; NCR did everything else.

"I believe part of what was attractive about that device to NCR was that it was a low-cost cash dispenser," Fincher said. "In many ways, it was very different than the typical 'banky' machine NCR and Diebold were putting out there."

And manufacturing a "non-banky" machine was what NCR needed to attract more retailers.

Over the course of their six months together, NCR also released the MCD 1 series. Known throughout the industry as the "Mother of All Cash Dispensers," said Dan Palczynski, Manager of Convenience and Retail Marketing for NCR, MCD actually stood for the Millennium Cash Dispenser.

"It was an extremely powerful and robust machine," Palczynski said. "It had the same framework as our banking machines." Unfortunately for NCR, however, none of the MCD 1s took off in the retail space.

The MCD 1 line was too heavy, too difficult to ship and, Palczynski admitted, "a little expensive." In 1999, NCR and TBS introduced the 8000, a cash dispenser very similar to the 5301, Palczynski said. And that same year, NCR developed and launched the NCR 5305, the company's first internally crafted low-cost cash dispenser specifically designed for the retail market.

But after six months, the relationship with TBS First was severed. Since TBS First turned all of its manufacturing business and vendor relationships over to NCR, it had nothing left when the two companies parted ways.

After the break up, Willoughby, Ohio-based Western Reserve Group Services Inc. (WRGS) came along and replaced the position TBS First once held with NCR. In late 1999, NCR and WRGS entered into an agreement and began performing life-cycle functions for the 5301.

"WRG stepped in with superior software for the same technology and became the servicing arm for all the 5301s. They continue servicing these units today," Palczynski said.

The MCD line was later branded EasyPoint, and NCR now manufactures the EasyPoint 53, 57 and 62.

But none of those lines caught on in the retail market as well as NCR would have liked. Most industry insiders believe NCR's retail struggles have more to do with culture and attitude than anything. "They just don't understand the retail market," one said.

"I think if NCR is smart, they will allow Tidel to operate with a certain level of autonomy and deal with their known product base with a team that's known to the public," another said.

"If NCR takes Tidel and tries to fully integrate it, including the NCR service arrangement, I think people like Triton and Tranax will breathe a sigh of relief."

The Tidel Advantage: A Different Culture

NCR's Lozier said the merchant, ISO and banking markets are fundamentally, even culturally, different. NCR, in an effort to broaden its reach, knows it needs to align itself with a company that understands the ISO market, a company like Tidel, he said.

"In the ISO market, you have Triton, Tidel and Tranax," Lozier said. "That doesn't happen by happenstance. If the markets were the same, you wouldn't have that division. ... There is a cultural difference."

The difference, he continued, separates banks from retail merchants and from ISOs. NCR and Diebold have led the banking segment for years. Lozier said NCR wants to move closer to being a leader across the board.

"We want to be No. 1 and No. 2 in the market," Lozier said. "That's NCR's perspective. It's our company view." Banking is the largest segment. ISOs and retail merchants are second and third, he added.

NCR has been trying to become a part of the ISO-merchant segment for the last 10 years, Lozier continued. And what better way to break into it than by acquiring a company that knows it inside and out. Like Fincher said: "Tidel understands the c-store world as well as anyone in the world."

Even though previous deals went south, industry buzzers said the deal with Tidel can work. "Tidel has had a good line of dispensers out on the market for the last 10 years; they're tested in the market, and they're managed by engineers and the people who built them," one said.

According to Haze Lancaster, President of Raleigh, N.C.-based ATM USA LLC, Tidel is his company's No. 2 brand, second only to Triton.

As ATM USA expanded its portfolio and purchased more ISOs, it's picked up more loyal Tidel customers, Lancaster said.

"We're probably moving about two-thirds Tritons and one-third Tidels." Lancaster said.

Brent Turner, the Chief Operating Officer of Amarillo, Texas-based Financial Payments Inc., a two-year-old distributor, said Tidel is its No. 1 brand, followed by Tranax and Diebold. "I'd say 80% of our machines are Tidel," Turner said.

In fact, he told ATMmarketplace in February that his company's purchase of the Tidel 3800, a cash dispenser with a sidecar, increased 200% from December to February.

Even though, Turner said, his company sells each of its terminals for about $22,000, obviously beyond the range of low-end, his customers, primarily c-stores and grocery stores, like Tidel's functionality.

"That's actually where Tidel has advanced," he said. "They've done a good job with advanced functionality, and they've stayed ahead of the game. Their flexibility and their desire to work with customers like us, I think, is what has really kept things moving for them."

Wally Hanna, Vice President of Participant Services for Mt. Prospect, Illinois-based Pay-Ease Inc., agreed, saying his company used Tidel's Chameleon for years; Pay-Ease even developed with Tidel a sidecar for the Chameleon for bill payment and collection.

Although Pay-Ease is now manufacturing its own machines, he said Tidel's willingness to work with customers made it superior.

"Our experience is that there are very few manufacturers out there that are willing to accommodate and change their standard line to meet customers' needs," Hanna said.

"Frankly, I have found no one else that was willing to work with us on the level Tidel was. We have had a good relationship with them, but it's not as strong as [it] was in the past, primarily because of their corporate financial situation."

Hanna said Pay-Ease had to begin manufacturing its own line because Tidel was unable to meet Pay-Ease's ordering demands.

But having that type of relationship with customers, most agree, is what will benefit NCR the most.

Original article: www.atmmarketplace.com/news_story_22709.htm