Activist investor Starboard Value wants payments firm ACI Worldwide to put itself up for sale. Starboard is a significant shareholder with a 9 percent stake in ACI, which means that its letter released on Wednesday (Dec. 2) urging a deal is likely to get at least some attention from the ACI board, which has not yet responded. Wall Street, in reaction, seems to be placing its bets that some sort of corporate action will be in the offing, as the shares were bid up 10 percent in intraday trading.
Starboard Managing Member Jeff Smith said in the letter that the financial targets in place are “almost impossible for management to miss,” which in turn implies that the company may not be realizing the full potential of its assets (and, by extension, scaling to its true potential in segments including retail payments, bill payments and solutions focused on real-time payments).
In the letter, a copy of which was provided to PYMNTS, Starboard contends that at ACI’s most recent investor day, “we were expecting to see projected improvements in organic growth and profitability so dramatic that the choice to remain a public company would be obvious to shareholders. Instead, we were presented with a guidance range that is so conservative that it seems almost impossible for management to miss, and a gradual three-year timeline that implies it will take ACI almost another two years from today just to get back to its 2019 revenue base and start producing new organic growth.”
To that end, noted the activist shareholders, pro-forma revenue growth, tied to guidance, projects a roughly 7 percent decline this year, rebounding to mid-single-digit percentage growth through the next few years as customers go ahead with previously delayed purchasing decisions. Starboard also noted that the transition to a subscription model (versus a license model) will take time and will result in revenue headwinds.
The shifts show some traction away from on-premise deployments and toward the continued tailwind created by eCommerce.
In Transition
ACI management said on its most recent earnings call that on-demand revenue was down 1 percent in Q3, with higher eCommerce volumes and omnichannel merchant payments. This helped to offset COVID-related slowing in certain verticals in ACI’s biller and digital banking solutions.
In a commentary on that call, CEO Odilon Almeida said that delays in customer purchasing decisions (particularly with financial institutions) continue into the current quarter. “Renewals are coming pretty strong, and our products are mission-critical, so we have no problem renewing the contracts, and that’s going quite well. The part that is really being delayed are the new products and services to the new logos and existing logos. So we are seeing RFPs being postponed or canceled, in some cases. And it’s very hard to predict when this is going to stop, but it’s clear … it is continuing in Q4.”
“Before embarking on a transition that could last a decade, we believe the board must currently explore all available strategic options to maximize value, including a sale of the company,” Starboard said in its letter.
Starboard has also been a disruptive force on the board of eBay, pushing the company to replace its CEO earlier this year. It was also the driving force behind eBay selling its classified division.
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