Leaf Now Fully Owned by Heartland, Still Losing Cash

Killing off the last generation of cash registers isn’t going to be easy. But the recent buyout of a Boston-area payments company should give us a glimpse at how expensive it’ll be to build the replacement.

Heartland Payment Systems has bought out the remaining shareholders of Leaf, a three-year-old company that sells a custom-built tablet and software system to small and medium-sized merchants around the country.

Princeton, NJ-based Heartland (NYSE: HPY) bought most of Leaf last year, paying $14.5 million for about 67 percent of the startup. In an SEC filing, Heartland reports that it bought out the rest of Leaf’s shareholders earlier this month.

“As a result of this transaction, Leaf becomes a wholly owned subsidiary of the company,” Heartland said.

It didn’t disclose the price paid for those minority shares. Leaf had reported raising about $6 million from unnamed angel investors before the Heartland investment.

Heartland’s ownership also means it’s possible to track Leaf’s progress toward becoming a sustainable business. The company says it lost $2.8 million on Leaf’s operations in the second quarter, and $5.5 million for the first half of the year.

Operating losses shouldn’t be surprising at this point, since Leaf is simultaneously developing new versions of its products and trying to win more customers. But it highlights the difficulty of making a dent in the bricks-and-mortar payments market, which attracted a flood of interest from startups and investors in the past few years—look no further than this fresh profile of payments-startup poster child Square to get an idea of how brutal the sector can be.

Leaf got a new CEO earlier this year, appointing former Heartland employee Sarah McCrary to replace co-founder Aron Schwarzkopf. In a recent interview, McCrary and co-founder Sebastian Castro Galnares told us Leaf’s strategy of building a broad software and hardware platform for local merchants hasn’t changed despite the management shakeup.

To make good on that vision, Leaf and Heartland have to jostle with plenty of other players, from traditional merchant-services companies like NCR and FirstData to with tech-industry stalwarts such as PayPal, Google, and Amazon.

Even though the economics can be tough to master, the amount of money flowing through local merchants is too big to ignore: the Census Bureau estimates that about $440 billion was spent at U.S. retail and food service businesses in June alone.

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