Looking to Bulk up in Small Merchants, TSYS Buys Cayan for $1.05 Billion in All-Cash Deal

The consolidation trend sweeping through the merchant-acquiring business made headlines again Monday morning with the news that Total System Services Inc. has agreed to buy Boston-based acquirer and technology provider Cayan LLC for approximately $1.05 billion in cash.

The deal, which TSYS says it expects to close in the first quarter of next year, brings to the Columbus, Ga.-based processor new gateway technology and a roster of some 70,000 small-and-medium-size merchants generating $26 billion in annual gateway and processing volume combined. It also anchors the company in the rapidly growing market for software and services that integrate payments with point-of-sale technology for merchants.

With Cayan in the fold, TSYS will process a total of $138 billion annually from approximately 730,000 merchant locations, the company said.

TSYS executives made it clear in a conference call Monday morning that Cayan’s strengths in technology and services for the small-and-medium-size-business market drove the decision to acquire the nearly 20-year-old company. “Our ambition is to be the leading SMB payments player in the United States,” Philip C. McHugh, president of merchant solutions for TSYS, told analysts on the call. Indeed, the deal for Cayan follows by nearly two years TSYS’s $2.35 billion acquisition of TransFirst LLC, another major processor for small businesses.

But Cayan brings other strengths as well, including in payments and POS software and in POS integration. “They have made that pivot to software integration,” noted McHugh, referring to a growing market dominated by so-called independent software vendors or ISVs. Cayan’s Genius platform, a set of hardware and software tools for merchants, stands as an example of the kind of technology TSYS is on the lookout for, he added. “The actual software platform we already have is good but not great,” he said.

Cayan’s platform checks off four boxes TSYS was looking for, McHugh added. “Is it easy to work with, with [application programming interfaces]? Is it omnichannel? Does it have strong functionality? Is it built on the right technical architecture—something not sewn together? Cayan definitely hits all those marks,” he told the analysts. “Omnichannel” refers to the ability to tie together data flowing in from different channels, such as physical stores and Web sites.

Observers who follow the merchant-acquiring business are inclined to agree that TSYS made a shrewd deal. In particular, “I would call out the Genius platform as a significant asset,” Jared Drieling, director of business intelligence at The Strawhecker Group, an Omaha, Neb.-based consultancy, tells Digital Transactions News.

“Cayan is one of the last remaining, scaled and scalable integrated-payments properties,” said Rick Oglesby, president of AZPayments Group, a Mesa, Ariz.-based consultancy. “It’s amazing that it has taken this long for someone to buy Cayan, but TSYS got a lot stronger today.”

Wall Street seems favorably disposed. In late-morning action, TSYS’s shares were trading at $78.58, up 57 cents from the day’s open, on the New York Stock Exchange.

TSYS executives on the call indicated Henry Helgeson, who founded Cayan in 1998 (it was known until January 2015 as Merchant Warehouse) and serves as the company’s chief executive, would be joining TSYS. “Henry Helgeson is a known quantity. He recognized the need to pivot to a true software company,” McHugh said. Helgeson did not immediately respond to a request for comment on the deal.

The Cayan acquisition caps a year that saw some of the acquiring industry’s biggest mergers and acquisitions in years, with the largest deal having been Vantiv Inc.’s $9.9 billion acquisition of United Kingdom based Worldpay Group plc, a deal that was announced last summer and which Vantiv says should close early in 2018.