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The Big Three Become the Big Two

Editor’s Note: CR80News asked several industry veterans to comment on the recent acquisition of Diebld’s Card System Division by The CBORD Group. Bret Tobey has worked with several companies in the ID managment, security, and campus card industries including Diebold Card Systems. His observations on what the transaction may mean to the campus card market follow.

By Bret Tobey, Contributing Editor

As Wall Street trading wrapped up on Friday, July 1, Diebold employees gathered at facilities and over the phone to learn The CBORD Group had purchased the Card System’s Division of Diebold. Rumors flew all weekend and formal announcement came Tuesday, July 5.

Long time observers of the campus card markets recognize this as a culmination of years of consolidation within the industry. Two companies, Blackboard and CBORD, now have the bulk of campus card installations. They especially dominate larger campuses where large scale transaction processing and multiple applications are the norm.

Why Sell?

Beginning with their purchase of Advanced Network Technologies (AN&T) and Griffin in the mid-nineties, Diebold moved aggressively into the campus card marketplace. Diebold’s Card Systems Division was the only operational group within Diebold that combined their strengths of transactions and security. That synergy allowed the Card Systems group to maintain a higher profile within Diebold than their percentage of the company’s overall revenue might otherwise suggest. Higher education, however, operated very differently from Diebold’s core markets of financial institutions and large corporate customers. Long sales cycles and the demand for highly tailored solutions and contracts meant the Card Systems group always operated a little differently than other divisions within Diebold.

Although the integration efforts of AN&T’s ICAM and Griffin’s Series5 platforms caused some serious stumbles in profits and market share in the late 90’s, they were a profit center in the 2000’s. In it’s 4.1 release, the CS Gold platform has been a very robust large scale transaction processing platform. Over the past several years product launches in the access control, video integration and alarms have strengthened Diebold’s offering on the security side of campus cards. Upgraded and expanded product offerings allowed Diebold to increase revenues while their market share increasingly focused on large institutions.

In the meantime, the privately held CBORD Group brought in outside capital from Oak Investment Partners and Sterling Investment Partners in the summer of 2004. CBORD openly mentioned their plans to use the new capital to grow through acquisition, and they took a major step in that direction with this transaction.

A Good Match?

Until last week, each of the three major providers of campus card systems had clear strengths in the market while remaining roughly comparable in many areas. Blackboard’s Internet capabilities complemented their broad transaction suite. Diebold led in security and access control. CBORD had a strong track record in the food & nutrition groups on campus. The addition of Diebold’s access control & security expertise to CBORD’s portfolio addresses one of the biggest gaps in their product line. When responding to bids requiring an access control solution, CBORD has had to rely on partners to offer product. At best, they did not capture all of the business possible. At worst they lost control of a critical component of the response. Expect to see at least basic integration in the short term that allows Odyssey customers to leverage Diebold’s strengths and vice versa.

Beyond the relative areas of expertise, both company’s current lead platform utilizes Oracle as the underlying database. Diebold exclusively uses Oracle and CBORD can leverage their ODBC capabilities for institutions that utilize Oracle for other campus applications. A common database platform makes basic communication efforts more realistic, but not necessarily easy. “Best of breed” integration efforts rarely turn out to be as simple as they might first appear.

Challenges and Opportunities

Managing the acquisition will be critical to CBORD’s ongoing growth, but they might be able to learn from difficulties in the last round of acquisitions. Diebold’s customer base still consists of Series 5 and CS Gold platforms. Blackboard maintains completely separate UNIX and Windows transaction platforms. The nature of campus card installation requires that CBORD maintain each of the platforms in their new customer base for at least several years. But, the perceived synergies of the investment will demand that they move forward with a platform that combines CBORD’s food service expertise with Diebold’s security expertise.

On a functional side, CBORD has operated as a systems integrator, shying away from manufacturing their own products. Diebold Card Systems brings an extensive history of manufacturing components. Those require two completely different organizational structures. The respective sales forces reflect this with Diebold having about a dozen account managers servicing a third of the customers that CBORD’s smaller staff does. Reports indicate that CBORD will retain all Diebold employees, but some turnover can be expected simply because of simple conflicts in culture and practice.

Over the course of the next year competitors may see a small bump as some institutions attempt to avoid the transition difficulties seen in past industry acquisitions. Reduced competition may make room in the market for smaller players to leverage a few key wins into a broader market share. However, with hundreds of campuses each, it’s unlikely that either Blackboard or CBORD will be unseated anytime soon.

Both CBORD and Diebold offered very robust housing management systems with dedicated customers. Convincing either set of customers to migrate will be difficult. However, managed appropriately CBORD may now have a critical mass that allows them to dominate the university housing management market. Over time, that might translate into markets beyond higher education for their housing and judicial applications.

That critical mass represents the largest opportunity for CBORD in all the application areas. As they eventually migrate towards common platforms, they will have a much larger customer base to support their engineering efforts. That should allow them the flexibility to continue enhancing their product sets as they pursue new opportunities. Unlike Blackboard, CBORD already has a strong presence outside of higher education. Pushing a broader application suite beyond higher education could allow CBORD to grow faster and bigger than any previous campus card provider. This acquisition provides the technology and talents to move in that direction.

A reported purchase price of $38 million makes it an extremely significant transaction for this industry. Initial reports state that Diebold employees will be retained and offices will be maintained in Farmington, NY, Green, OH, Waco, TX, and Cypress, CA with retention of the staff in Atlanta, GA but a closing of that office.

Customer & Industry Reaction

Having seen this before, customer reactions are somewhat tempered. The simple size of campus card installations precludes rapid migrations to new platforms, so it is not surprising that the customers of Diebold and CBORD that I spoke with expect to see only minor changes for some time. Kent Pawlak from the University of Texas at Arlington, a long time Diebold Card Systems customer, typified customer sentiment. While their overall reaction seems to be generally positive they would be taking a “wait and see” approach to the new organization. Another longtime customer observed that ten years ago the big players in the market included Harco and Griffin. Now, it appears, the Harco and Griffin descendants (Blackboard and CBORD respectively) are poised to battle for market share once again.

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