Globally, the credit card industry has undergone a major shift over the past few years, moving away from traditional magnetic stripe chip cards to those with an embedded microchip, because of the increased security benefits.Matt Rourke/The Associated Press
Canadian private equity firm Tricor Pacific Capital Inc. is taking one of its biggest investments public. The Vancouver-based buyout shop has filed documentation to raise $100-million (U.S.) in an initial public offering of American credit card maker CPI Card Group Inc. The plan is to list CPI on the Toronto Stock Exchange and the Nasdaq.
Last year, CPI produced 360 million cards for banks and credit card issuers, and counts JPMorgan Chase & Co., Bank of America, American Express Co. and Wells Fargo & Co. among its customers. Colorado-based CPI has operations in the U.S., the U.K. and Canada.
Globally, the credit card industry has undergone a major shift over the past few years, moving away from traditional magnetic stripe chip cards to those with an embedded microchip, because of the increased security benefits. After suffering a high-profile data breach in 2013, Target Corp. signalled its intention to shift to chip card technology. The U.S., however, has been slower to adopt this technology than many other parts of the world, like Canada and Europe, where the technology is commonplace.
"It's the merchants who have not wanted to invest in the terminals, or other machines that can read those cards," said David Hilder, an analyst with Drexel Hamilton LLC in New York.
While CPI may not be selling as many chip cards as it might like in the U.S., those that it does sell command significantly higher margins than the older technology.
"Depending on the features required by the issuer, EMV [chip] cards may sell for five to 10 times the average selling price of the magnetic stripe cards they are replacing," said CPI in an U.S. Securities and Exchange Commission (SEC) filing on Thursday. CPI also noted, however, that banks may end up pushing out the replacement cycle on credit cards from the current three years to up to five years, which could hurt the firm's business.
CPI reported revenue of $77-million for the first quarter of 2015, up more than 80 per cent year-over-year, and a $6-million profit. CPI however is carrying a heavy debt load with $172-million in long-term debt.
Tricor acquired CPI in 2007 for an undisclosed sum and owns an 83-per-cent stake. Private equity firms typically hold on to their investments for 7 to 10 years before cashing in via a private sale or an IPO. A number of the new Canadian IPOs in Canada this year have been driven by private equity firms. In June, Montreal-based Stingray Digital Group Inc., owned by private equity firm Novacap Management Inc. went public on the Toronto Stock Exchange.
Tricor was founded in 1996 and has operations in Vancouver and Chicago. Its funds are currently invested in about half a dozen firms that run the gamut from real estate services, to salt manufacturing, to a bakery.
BMO Nesbitt Burns Inc., Goldman Sachs Group Inc., and CIBC World Markets Inc. are co-leading the CPI stock sale.
Niall McGee