By Maria Bruno-Britz, Bank Systems & Technology
The first week of April saw at least two significant moves involving two of the leading players in the bank tech vendor space-Denver-based First Data and Milwaukee's Metavante. The deals illustrate yet again just how volatile today's financial technology space truly is.First Data, provider of electronic commerce and payment solutions, is to be acquired by an affiliate of private equity firm Kohlberg Kravis Roberts & Co. (KKR) in a deal worth $29 billion.
Ric Duques, chairman & CEO of First Data, said in a statement, "We are pleased to reach this agreement with one of the world's largest and most successful private equity firms. We believe that current market conditions present an exceptional opportunity to fulfill our commitment to maximize the value of First Data by delivering an immediate cash premium to our shareholders."
According to KKR member Scott Nuttall, "We believe that through continued investments in its technology, people and customer relationships, First Data will build on its history of innovation and industry leadership. We look forward to working closely with First Data's management team and clients to grow the franchise in the years ahead."
Since its initial public offering in 1992, First Data has grown from $1.2 billion in annual revenue to $10.6 billion prior to the spin-off of Western Union and $7.1 billion post spin-off, according to company figures.
TowerGroup's Ted Iacobuzio, managing director and practice leader in its payments practice, thinks the announcement makes sense. "The deal is surprising in its size, but not in its logic," he said in a statement. "The spin-off of Western Union from the larger First Data was an unmistakable signal that the company was finding it difficult to find synergies among its related--though disparate--lines of business."
To Iacobuzio, the larger questions are around First Data's U.S. issuer-side processing business and its global network of acquisitions, joint ventures and alliances. "Only time will tell how the latter are dealt with, governed or sold. The former, once the company's crown jewel and now shrinking, could provide more than one network, bank or other payment processor with a commanding position among 'tier two' credit card issuers."
The deal, if approved, is expected to close in the third quarter of 2007.
As for Metavante, the financial solutions provider is striking out on its own. Long a part of Marshall & Ilsley, the two companies plan to split up into independent entities.
Private equity investor Warburg Pincus agreed to invest $625 million to acquire an equity stake of 25 percent in Metavante. Marshall & Ilsley shareholders will own 75 percent of the shares of Metavante. The plan will be implemented through the spin-off of Marshall & Ilsley.
Metavante, as a stand-alone publicly traded company, will have approximately 5,500 employees. It generated revenue of $1.5 billion for the year ended Dec. 31, 2006. The company does not expect any management changes. Frank Martire will continue to serve as president and CEO and Mike Hayford will remain senior executive vice president and chief operating officer.
"When this transaction is completed, we will have access to financial resources to continue to build new products, acquire additional companies, invest in new technologies, as well as attract and retain the best employees in the industry," said Frank Martire, president and CEO of Metavante. "With $1.5 billion in revenue in 2006, Metavante Corporation now has approximately three times greater annual revenues than it did seven years ago. With 17 acquisitions and continued strategic product investments since the beginning of 2004, we have transformed our company into a uniquely diversified business, balanced between banking and payments technologies that have demonstrated above-industry average growth potential."