Wednesday , March 20, 2019

Eye on Acquisitions: ACI Snags Online Resources; FIS Swallows mFoundry

 

Thursday, Jan. 31, 2013, will go down as one of the payments industry’s more notable days of the deal. First, payments-software developer ACI Worldwide Inc. announced plans to buy Online Resources Corp. in a deal that values the electronic bill-payment and presentment technology provider at $263 million. Then the big processor Fidelity National Information Services Inc. (FIS) said it had struck a deal to buy the 78% of mobile-payments software firm mFoundry Inc. that it doesn’t own already for $120 million in cash.

The acquisition of Chantilly, Va.-based Online Resources will close a gap in ACI Worldwide’s offerings for banks and credit unions, according to company president and chief executive Philip G. Heasley. Online Resources has direct connections to 9,000 billers and provides bill-payment and presentment services in both the biller-direct and financial-institution channels. It also offers online-banking services. On an annualized basis Online Resources processes $140 billion in payments for 600 billers and 500 banks and credit unions.

“The complementary nature of Online Resources’ bill-payment technologies creates an undeniable opportunity to enhance our full-service suite of payment software,” Heasley told analysts during a conference call. He added that the online bill-pay market has plenty of room to grow. “Bill payment, if you eliminate banks paying banks, probably hasn’t obtained 10%, there’s still 90% of the market left,” he said.

Some analysts, however, wondered if ACI isn’t putting itself into direct competition with well-capitalized processors such as Fiserv Inc. with its CheckFree bill-pay platform, FIS, and Jack Henry & Associates Inc. But Heasley downplayed those concerns, saying ACI’s financial-institution customers want it to provide more billing services and that it sells its products differently from payment processors. ACI gets most of its revenues, which amounted to $442.5 million in 2012’s first nine months, from software licensing, maintenance, and hosting fees.

“We’ve been told by the very large banks and by the certainly larger medium banks that this was a gap in our offering and this is something that we needed to provide them…probably not in competition with the traditional providers, because we intend to provide it as a service to them, not as competitive processing,” he said. “We want to more enable them to do their own payments.”

Naples, Fla.-based ACI expects to close the transaction by March 31. The deal includes $3.85 per-share in cash in addition to the redemption of Online Resources’ high-yield preferred stock held by its largest shareholder, the Tennenbaum Capital Partners hedge fund. Heasley said the buyout will give shareholders a 55% premium over Online Resources’ recent 90-day weighted average share price. Tennenbaum’s investment financed Online Resources’ $180 million acquisition in 2006 of another leading bill-pay provider, Princeton eCom Corp. Online Resources in late 2012 pegged the value of the preferred shares at $124.5 million, and Tennenbaum had the right to redeem them beginning in July 2013.

Online Resources declined comment. While it has well-regarded technology, Online Resources struggled for years to make a substantial profit. Co-founder and former chairman and chief executive Matt Lawlor battled with the restive Tennenbaum before being ousted in early 2010. He later won a $5.27 million employment-related judgment against the company plus $2.13 million in attorneys’ fees. Online Resources is appealing, and ACI says Online Resources has reserves to cover litigation expenses.

The sale of smaller financial tech providers such as Online Resources to bigger companies is, “without question,” inevitable, especially as the banking industry consolidates, according to James Van Dyke, founder and chief executive of Pleasanton, Calif.-based Javelin Strategy and Research, now part of Greenwich Associates. With Online Resources, ACI will get “more penetration in the credit-union and community-bank market,” Van Dyke says by e-mail. “And taking a cue from Silicon Valley firms like Apple and Google, several patents around real-time, good-funds transaction-processing models.”

Meanwhile, the acquisition of Larkspur, Calif.-based mFoundry will give FIS full control of a prominent mobile-banking and -payment platform used by 850 clients, including Starbucks Corp. Bank users include Bank of America, PNC, KeyBank, and Zions. The $120 million FIS is paying values mFoundry at $154 million.

Neither Jacksonville, Fla.-based FIS nor Drew Sievers, mFoundry’s co-founder and chief executive, would comment beyond prepared statements. “The addition of mFoundry creates one of the leading mobile entities in the financial-services space and enables FIS to leverage its technology assets across a broader client base,” FIS said. FIS expects the deal to close by the end of the first quarter.

Founded in 2004, mFoundry’s investors also included MasterCard Inc., PayPal Inc., and NCR Corp. “FIS has been a great investment partner for the last several years, and the timing was right for us to combine forces to create the unparalleled industry leader in mobile delivery,” Sievers said. “This transaction enables us to capitalize on new market opportunities and bring top-tier mobile capabilities to our combined client bases.”

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