Bankrupt Pay By Touch to auction off its assets

Published 26 February 2008

Pay by Touch came to market with a big splash; its system was installed in more than 700 U.S. retail locations; its biometrics and personalized marketing businesses, however, lost $137 million last year on only $600,000 in revenue; it sought buyers, but there were no satisfactory offers, so it is planning to auction off its assets

You win some, you lose some. With potential buyers so far proving to be no more than tire kickers, bankrupt biometrics payment company Solidus Networks, which does business as Pay By Touch, is looking to sell itself in separate auctions of what it calls its core and non-core assets. Digital Transactions reports that the core assets center on Pay By Touch’s biometric-authentication technology which uses fingerprint identification. They also include its loyalty-services unit and the S&H Marketing subsidiary that includes the S&H Greenpoints Internet-based rewards program, a program that traces its origins to the old S&H Green Stamps. An auction for these businesses is expected in early March, according to an industry source who says they could be sold earlier if a buyer does emerge. Pay By Touch did not respond to Digital Transactions News inquiries Thursday.

Pay By Touch’s biometrics business was a big money loser despite installations in more than 700 U.S. retail locations, most notably SuperValu’s Jewel/Osco grocery stores in the Chicago area. The biometrics and so-called personalized marketing businesses lost $137 million last year on only $600,000 in revenue, according to documents filed in the U.S. Bankruptcy Court in Los Angeles, which is overseeing the case. S&H, in contrast, earned $2.4 million last year on revenues of $36 million. The unit, the chief customers of which are grocery stores and which processes 500,000 transactions daily, generates most of its revenues through the sale of Greenpoints. The loyalty unit, which developed shopper identification services and loyalty programs accessible through kiosks and the Web, generated $7.2 million in revenue in 2007 and lost $2.5 million.

According to recent filings which include a declaration by turnaround specialist Thomas Lumsden, who was appointed by a Delaware court late last year to oversee Pay By Touch’s restructuring, efforts so far to find a buyer have not succeeded. The company hired investment bank Jefferies & Co. in December to shop the core assets. Jefferies contacted more than ninety potential financial and strategic investors, according to a filing. Solidus itself also hunted for investors. Together, Jefferies and Solidus generated about forty requests for a confidential information package, but none of the lookers came through with a satisfactory offer by the 31 January deadline set under terms of Solidus’s debtor-in-possession financing. Solidus got an extension until 8 February. “Ultimately, while the debtors have received expressions of interests{CQ} from a number of parties, to date they have been unable to enter into either a binding offer to participate in a plan of reorganization or a binding asset-purchase agreement prior to the current milestone deadline of Feb. 8, 2008,” Lumsden said in his declaration. “Accordingly, at my direction, the debtors have moved to proceed with an auction …”

Pay By Touch last month publicly discussed plans to sell what it called non-core assets. According to sources and court documents, bids were due 19 February, with an auction near month’s end. An auction had been scheduled for Thursday but was adjourned for unspecified reasons. The non-core assets include an assortment of subsidiaries such as the former CardSystems merchant processor, ATM Direct, the former InterCept Payment Solutions, and the Paycheck Secure unit of the former BioPay LLC, a biometrics rival that Pay By Touch acquired in late 2005. BioPay successor Whorl LLC is challenging the sale of some BioPay intellectual property included in one of the core assets, PBT Checking Resources Inc. Whorl is asserting that Pay By Touch defaulted on promissory notes it issued to Whorl to finance the original sale, which also included $15 million in cash. Whorl wants the court to remove PBT Checking from the bankruptcy proceedings.