Friday 19 October 2018

in the firing line

::: Newsmaker John Nagle, Payzone chief executive

John Nagle, boss of electronic payments company Payzone, is facing the battle of his business life. Just over a month after Payzone made its debut on London's Alternative Investment Market (AIM), Nagle faces the very real prospect of being ousted from the company.

By any yardstick, this week's events at Payzone have been truly extraordinary. On Wednesday morning an apparently well-sourced newspaper article stated that Nagle and John Williamson, Payzone's chief financial officer, were "discussing the terms of their departure" from the company.

Sure enough, a statement quickly followed from Payzone informing shareholders that Nagle and Williamson had left and that Payzone's chairman Bob Thian was taking over the running of the company.

There then followed several sentences of standard-issue corporate boilerplate, acknowledging Nagle and Williamson's "important contributions to the development of the company".

So far, so ordinary. It seemed as if this was just another everyday falling out amongst ordinary corporate folk with the losers being sent on their way with pockets stuffed full of shareholders' cash.

But it wasn't so. Nagle and Williamson refused to play by the usual script. Instead of quietly riding off into the sunset the pair went straight to the High Court.

They pointed out that under Payzone's own rules, board meetings were supposed to take place in Ireland but that the meeting which decided to dismiss Nagle and Williamson had taken place in the UK. The pair also argued that under the terms of their contracts they were entitled to 12 months notice. Instead they were notified of the board's decision that they were leaving the company "with immediate effect" by e-mail on Tuesday night.

The High Court quickly granted Nagle and Williamson a series of injunctions. Under the terms of the injunctions Payzone was banned from removing them from either their executive positions or as directors. Payzone was also banned from announcing that the two men had been removed.

Following the High Court rulings, Payzone was forced into a humiliating climbdown. It quickly issued a statement announcing a suspension of trading in the company's shares until the legal dispute with Nagle and Williamson had been resolved.

Until this week's contretemps, most people had never heard of either John Nagle or Payzone. This was despite the fact that Nagle has been one of Ireland's most successful, and sometimes controversial, entrepreneurs over the past two decades.

Born in Cork in 1962, he grew up in Togher on the southside of the city before moving in his teens to the seaside resort of Kinsale where he still owns a holiday home. He and his wife Joan have three children.

Nagle was educated at the now defunct St Finbarr's Seminary, Farranferris. Despite repeating his Leaving Certificate he didn't go on to third level education. "I was not the greatest academic of all time", he recalled later.

After leaving school Nagle went to work as a junior manager at the Lois jeans factory in his native city. Even in the early 1980s it was clear that the Irish textile industry was facing into a bleak future. Clearly an ambitious young man like Nagle was going to have to seek his fortune elsewhere. Within a few years he had abandoned the jeans business and joined telephone maintenance company Technico instead.

Then in 1989, Nagle teamed up with old boss Malcolm Moffett, to set up an independent telecoms maintenance company, ITM. They were subsequently joined by Nagle's brother-in-law Maurice Healy and ITM quickly branched out into the far more lucrative field of credit card terminals. While ITM originally maintained other suppliers' terminals, Nagle quickly realised that the real money came from developing, installing and maintaining its own machines.

In May 1997, the company, which had by then been renamed ITG, was floated on the junior markets of the Dublin and London Stock Exchanges. The shares floated at €1.98 and Stg£1.56 respectively valuing the company at €8.9m or Stg£7m, Nagle used the currency his quoted shares gave him and ITG embarked on an acquisition spree during which the company grew rapidly. Leveraging ITG's strong position in credit-card terminals, Nagle transformed the company into a major player in the rapidly developing electronic-payments business.

By November 1999, when ITG moved up to a full stock-exchange listing, the share price had risen to almost €7.50 and the value of the company had reached €142m. The ITG share price peaked at over €20 in February 2000 valuing the company at over €450m. ITG, it seemed, had arrived.

Then the internet bubble burst. For companies such as ITG which had ridden the internet boom on exaggerated hopes for e-commerce there was only one way for the share price to go -- down. And down it went. By September 2002 the share price had fallen to a mere €1.30. With tech stocks having fallen completely out of favour, a frustrated Nagle launched an MBO bid for the company, which had changed its name to Alphyra, in December 2002.

Until this week's sensational events, the 2002-3 Alphyra MBO was easily the most controversial episode of Nagle's career. Backed by venture capital outfit Benchmark Capital, Nagle and his management team offered €2.45 a share for Alphyra, valuing the company at €80m. This was later increased to €2.70 a share, valuing the company at almost €90m. The MBO offer quickly alerted other potential bidders with American firm First Data Corporation, which owns Western Union, gearing up to make an offer.

Nagle was having none of it. The MBO team warned any bid from First Data would be "hostile and most unwelcome". In the face of such intense hostility First Data backed off. While Nagle's robust tactics led to a mild rebuke from the Takeover Panel they ensured that no rival bidder gatecrashed the MBO.

Nagle continued to grow Alphyra out of the quoted company limelight. It spent almost €140m buying companies in Ireland, Germany, Sweden and Netherlands between 2003 and 2007. The two biggest deals were in 2005 when it paid An Post €85m for its UK and Spanish mobile phone top-up companies and €25m for German firm EVS. Then in 2007 came the big deal when Aphyra merged with UK-listed company Cardpoint, which operates 6,000 ATM machines in Britain and Germany. The combined company, which was named Payzone, was 59pc owned by Alphyra shareholders with Cardpoint shareholders owning 41pc. Processing over €10bn of payments annually in 21 European countries for banks, utilities and mobile phone firms it is the largest consumer-payments company in Europe. With Nagle and Williamson, who had been Alphyra's finance director, taking the same jobs at Payzone it appeared as if the merger was in reality a takeover of Cardpoint by Alphyra. Except it wasn't. What Nagle, who is described by those who know him well as a superb strategist, seems not to have taken into account was the position of Benchmark, now known as Balderton. It rolled over its 67pc shareholding in Alphyra into a 40pc stake in Payzone.

Unfortunately, the stock market turbulence during the second half of last year meant that it was unable to sell any of its shares when Payzone was listed on AIM on December 5. To make matters worse, the shares, which began trading at Stg76p, rapidly headed south, falling to just Stg49p before they were suspended this week. This fall knocked almost Stg£33m off the value of Balderton's stake in Payzone.

This fall in the share price seems to have worsened the already poor relations between Nagle and Balderton. As a result, Balderton sided with Payzone chairman Bob Thian when he moved against the pair this week. When the Balderton shares were added to those held by former Cardpoint shareholders, Nagle and Williamson didn't stand a chance. While Nagle has blamed the problems at Payzone on a deteriorating trading performance at the former Cardpoint businesses his position is far from secure unless he can persuade Balderton to change sides.

Still, weep not for Nagle. His 9.9pc of the Payzone equity is worth Stg£14.3m, even after the recent falls in the share price. He is also on a €400,000-per-year contract under which he is entitled to 12 months' notice. No matter what the result of the current legal battles his involvement with Payzone will leave him a very wealthy man.

Business Newsletter

Read the leading stories from the world of Business.

Also in Business