Just six months after declaring that it intended to become a player in the independent software vendor (ISV) payments space, processor First Data Corp. late Monday said it has a deal to buy a prominent ISV, CardConnect Corp., for $750 million.
“CardConnect has been investing in technology, dedicated sales, and specialized integration teams for the ISV space in recent years,” First Data chairman and chief executive Frank Bisignano said on a conference call early Tuesday. “We believe its ISV business is at an inflection point, with its pipeline starting to now grow rapidly.”
King of Prussia, Pa.-based CardConnect serves 67,000 merchants and posted $22.3 billion in bank card processing volume last year, up 31% from $17.1 billion in 2015, according to information disclosed with the announcement. CardConnect’s gateway processing volume jumped 179% to $5.3 billion. The company, currently a First Data distribution partner, posted revenues of $156.5 million last year, up 29%. CardConnect had been known as Financial Transactions Services since its 2006 founding until its name change in 2013. At that time, the company said it had 45,000 merchants.
“What really excites us about this transaction is the opportunity to scale our solutions across a much larger base of customers, and First Data brings that and more,” Jeff Shanahan, CardConnect’s president and CEO, said on the call.
The acquisition will make Atlanta-based First Data even more of direct competitor to rival merchant acquirers Global Payments Inc. and Vantiv Inc., which have been active in the ISV niche for several years.
CardConnect has been developing its ISV products for more than two years, and now, through its distribution partners, offers merchants various business-management and reporting tools through such products as CoPilot and CardPointe. Bisignano said those products not only help businesses run their operations better, but also increase merchant retention for the partners that offer them. Retention of small merchants has been a problem for First Data, though company executives said it has been improving recently.
“We think these tools will be very valuable for all of our distribution channels,” Bisignano said on the call.
CardConnect also offers payments integration into so-called enterprise resource planning software programs from SAP and Oracle, which are large-scale applications for mid-size to large merchants. The ERP products can reduce merchants’ cost of compliance with the Payment Card Industry data-security standard and their exposure in cardholder data breaches, according to Bisignano.
“We believe our bank partners will be excited about offering this highly differentiated solution to their clients, which in turn will help accelerate the growth of CardConnect’s ERP solution,” he said.
First Data said it will fund the transaction, which includes repayment of CardConnect’s debt, with cash on hand and funds from its current credit facilities. CardConnect’s board of directors and shareholders holding 40% of its common shares already support the transaction, which the companies expect to close in the third quarter.
First Data’s offering price of $15 per share in cash represents a 10% premium over CardConnect’s closing price of $13.65 on Friday. No sooner was the deal announced, however, than Johnson & Weaver LLP, a law firm specializing in shareholder rights, said it is investigating whether CardConnect’s board adequately explored alternatives to get the best possible price for the company.
Should it go through, the pending acquisition will be the second ownership change for CardConnect in about a year. Last July, FinTech Acquisition Corp. (FNTC), a publicly traded blank-check company whose purpose is to buy other companies, acquired CardConnect LLC for $350 million. After the acquisition, FNTC renamed itself CardConnect Corp., with its shares trading on the Nasdaq Stock Market under the ticker symbol CCN.
CardConnect represents the second significant acquisition of the year for First Data. In March, the processor announced a deal to buy Acculynk Inc., a 9-year-old Atlanta-based company that markets technology called PaySecure to enable buyers to use PIN-debit cards to make purchases on the Web via laptops or smart phones.