In a seismic reshaping of the US payments
technology market, Fidelity National Information Services’ (FIS)
$2.94 billion acquisition of Metavante Technology promises to vault
Fidelity to the top of the global ranks of providers of technology
services to financial institutions.
On the heels of that announcement came word of
a major joint venture with Western Union and banking systems vendor
Yodlee.
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Jacksonville, Florida-based FIS – unrelated to
Boston-based investment giant Fidelity Investments – already
provides software and processing services to 14,000 financial
institutions worldwide, including a deep international client base.
Metavante adds 8,000 financial services institutions and
businesses. The combined value of the companies will be about $10
billion.
FIS ranked second in the most recent FinTec
100, an annual list of global companies that provide technology
services. Fiserv was number one and Metavante was number 10. The
deal would place FIS comfortably ahead of Fiserv in the ranks of
world financial services technology vendors.
Cost synergies of $260m
In 2008, the two companies generated
combined revenue of $5.2 billion and cash flow of more than $500
million. As a result of the combination, FIS anticipates it will
achieve cost synergies of approximately $260 million, according to
a news release.
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By GlobalData“By bringing these two companies together, we
expect to accelerate revenue growth, drive higher profitability,
and create greater financial flexibility for growth investments and
acquisitions,” said Frank Martire, current Metavante chairman who
will serve as president and CEO of the new management team.
“In addition, the size, scope and geographic
reach of the combined company will offer even greater opportunities
to our employees, worldwide.”
FIS Chairman William P Foley II, said the deal
was aimed at expanding the company’s global reach, broadening its
product set and lowering costs to clients.
“The combined scale, complementary product
capabilities and market breadth of these two great companies will
drive significant competitive advantages in the increasingly
dynamic marketplace,” said Foley.
Metavante, which became an independent company
less than a year-and-a-half ago itself, was a unit of Marshall
& Ilsley Corporation for 40 years before Wisconsin’s biggest
bank spun off the company as independent company.
The move allowed Metavante to make
acquisitions in the consolidating bank technology arena by using
its own stock – instead of Marshall & Ilsley’s – as currency.
Analysts expressed surprise at the deal, as most observers thought
Metavante was poised to become one of the leading technology
providers on its own.
Bigger array of products
Metavante has a bigger array of
products that can be sold to banks in addition to the basic
technology, such as automated account keeping, that all financial
institutions need, which certainly appealed to FIS, whose
international presence dwarfs Metavante’s.
The merger will allow FIS to cut costs while
getting bigger and better positioned to compete for business in a
world where banks want to buy more products from fewer vendors and
are cutting their own in-house technology staffing. Buying
Metavante will mean that FIS becomes the primary deposit systems
provider to nearly 50 of the top 100 banks, where most of the
technology spending occurs.
It will even jump past long-time market leader
Jack Henry in the community bank space in terms of the number of
institutions it will be serving in the US.
The combined company will have to deal with
some overlap issues going forward, as each firm has widely deployed
core systems. Metavante’s partnership with Zurich-based core
systems provider Temenos was designed so that both companies could
jointly develop an advanced core banking solution based on Temenos
technology to be marketed to US banks.
FIS has its own next generation core system,
Profile, operating in hundreds of banks. Company officials said
that given the size of the companies, the overlap is relatively
minimal.
In a conference call with analysts and
journalists, FIS president and chief executive Lee Kennedy said the
deal gave his company the scale it needs to fend of traditional
competitors and defend its market share from new entrants the
company envisions entering global payments markets worldwide.
“There are going to be larger competitors in
this space in the not-so-distant future,” Kennedy said, citing
Hewlett-Packard, Oracle and IBM as three companies worth
watching.
Fidelity would have operations centres in 25
countries and customers in 90 countries after the acquisition,
Kennedy said.
“We will have the broadest international reach
in the whole industry,” he added.
Kennedy would serve as executive
vice-chairman, with responsibility for integrating the two
companies, and Martire would become president and CEO. Fidelity’s
headquarters will stay in Jacksonville, with a significant presence
in Metavante’s Milwaukee offices.
Under the terms of the deal, Metavante
shareholders will receive 1.35 shares of FIS stock for each share
of Metavante they own. Based on FIS’ share price, the deal values
Metavante stock at a 23 percent premium. Pending shareholder
approval, the companies expect to complete the deal sometime
between July and September 2009. The deal will be subject to
approval by federal regulators as well.
Further signaling its intention to move
aggressively into new payments frontiers, FIS also announced it is
teaming with money transfer leader Western Union and online
financial application provider Yodlee to expand its online bill
payment suite for FIS clients.
Through this relationship, FIS will integrate
Yodlee PayToday, the aggregator’s expedited bill payment solution,
into the FIS online bill payment solution.
FIS bill pay customers will now be able to
take advantage of the revenue-generating capabilities offered by
Yodlee payments solutions and begin to generate new fee-based
revenue by offering customers the convenience of guaranteed,
same-day electronic payments.
Western Union gives PayToday customers access
to one of the largest same-day electronic payments network in the
industry. Western Union’s proprietary biller network includes
hundreds of billers across multiple biller categories, including
credit cards, mortgage, auto finance, insurance, utilities, cable
and wireless.
