Consolidation Marches on As Fifth Third Buys NPC

Another seismic merger rumbled through the merchant-acquiring industry on Wednesday when the big acquirer Fifth Third Processing Solutions LLC announced it had struck an agreement to buy Louisville, Ky.-based National Processing Co. When the deal closes, Cincinnati-based Fifth Third will have more than 420,000 merchant locations and annualized charge volume of $344 billion.

Fifth Third Processing and NPC owner GTCR Golder Rauner LLC, a private-equity firm, did not reveal terms of the deal, which they announced late in the day. NPC will operate as a subsidiary of Fifth Third Processing, retaining its offices in Louisville, Houston, and suburban Chicago.

Fifth Third Processing is 51% owned by private-equity firm Advent International and 49% by its long-time full owner, Fifth Third Bancorp. The NPC acquisition will give Fifth Third Processing deeper penetration into the independent sales organization market. ISOs typically serve small and mid-sized merchants, which acquiring executives say are more profitable than large merchants.

“This acquisition is an important part of our ongoing growth strategy, as it broadens our client relationships, enhances the innovative services we provide merchants across the United States, and expands our cross-selling opportunities among our clients,” Charles Drucker, president and chief executive of Fifth Third Processing Solutions, said in a statement. Besides merchants, Fifth Third Processing provides various services to 3,100 financial institutions.

While Fifth Third Processing also has small merchants in its approximately 180,000-location portfolio, it has a number of big, national retailers. In all, they generate annualized charge volume of $315.5 billion. NPC has about 240,000 merchants and an estimated $28.5 billion in annual volume.

The deal has some disruptive potential if it forces merchants to change processing platforms. Merchants dislike payment card operational changes as much as they dislike card-acceptance costs. “If they are going to be moved to a different platform, every merchant is going to be up for grabs,” says acquiring industry researcher Paul R. Martaus, president of Mountain Home, Ark.-based Martaus & Associates.

It wasn’t immediately clear which platforms the deal partners use. As a non-bank entity, NPC uses First National Bank of Omaha as its main sponsor bank into the Visa/MasterCard networks. That bank is the 49% owner of First National Merchant Solutions, which is 51% owned by processor Total System Services Inc. (TSYS) (Digital Transactions News, March 1).

Although it traces its roots back to the 1960s, Louisville, Ky.-based NPC in its present form was created in 2006 when Iron Triangle Payment Systems LLC, backed by GTCR and headed by chief executive Tom Wimsett, bought the ISO business of BA Merchant Services Inc., a unit of Bank of America Inc. that included the original NPC Wimsett had headed (Digital Transactions News, Sept. 15, 2006). GTCR bought another merchant processor, Retriever Payment Systems, in 2004 and after the BA Merchant Services deal the Iron Triangle payment businesses were rebranded as National Processing Co.

Executives were unavailable for comment Wednesday and it was not clear if Wimsett would continue with the combined company. In a GTCR release, however, he said, “We look forward to working with Fifth Third Processing Solutions to continue building on the legacy of our industry-recognized success.”