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A new company run by electronic-payments veteran Bipin Shah announced on Monday it has agreed to buy two merchant processors and a payroll-processing company for a total of $179 million in cash and stock. The acquisitions are part of a strategy followed by Radnor, Pa.-based Universal Business Payment Solutions Acquisition Corp. (UBPS) to buy and consolidate companies with assets that can be used to serve payments and other needs of small businesses.
UBPS, which went public 14 months ago, is buying Electronic Merchant Systems, Cleveland, JetPay LLC, Carrollton, Texas, and Allentown, Pa.-based payroll processor A D Computer Corp., along with a related company, Payroll Tax Filing Services Inc. It is paying $60 million in cash upfront for EMS, along with 3.33 million UBPS shares. JetPay fetched upfront $28 million cash and 2 million UBPS shares.
All told, UBPS proposes to lay out $104 million in upfront cash for the three entitities, with future payments consisting of both cash and stock. Of these payments to come, some $25 million is “contingent on the achievement of certain targets,” according to a UBPS news release. The company is funding its cash outlay with a $60 million credit facility and cash held in trust, according to the release and an 8-K filing with the Securities and Exchange Commission. The company expects the transactions to close early in the fourth quarter.
UBPS’s strategy is to combine related services for small businesses in a single vendor. “The market for payroll processing, card processing, and funding is still relatively fragmented, with the majority of small businesses utilizing separate resources for each,” said UBPS chairman and chief executive Shah in a statement. “We feel that by combining these three companies, we can address this market by providing a complete turnkey business-processing solution for customers and do it efficiently.”
Speaking to Digital Transactions News, Shah says he plans to use the three acquired companies to introduce new products, including gift cards and payroll cards. “There’s an enormous need for these services,” he says. He also plans to use JetPay’s platform as an in-house processor for EMS and future acquisitions. Currently, EMS uses Total System Services Inc. for front-end processing, according to the 8-K filing, at a cost of about $3.5 million per year. JetPay, says Shah, was appealing as an acquisition target because of its ability to handle both face-to-face and card-not-present transactions. “We looked at lots of platforms,” he says. “There are only 10 or 12 in the whole country worth looking at. [With JetPay], we think the volumes are going to grow significantly.”
Nor has UPBS exhausted its appetite for acquisitions. Shah says the company plans to do “one or two acquisitions per year,” deals he says may include more payments processors.
According to the 8-K filing, EMS has seen its revenues grow rapidly in recent years, reaching nearly $40 million in 2011, up more than 40% from 2009. JetPay logged revenue of $17.5 million last year, up 68% from 2009. The company has 2,600 clients with 55,000 locations. Sales volume over the same period grew from $2.2 billion to $8.1 billion.
Shah is no stranger to the debit and credit card processing industries. He is formerly a vice chairman and chief operating officer of Philadelphia-based Corestates Financial Corp., which is now part of Wells Fargo & Co. after a series of mergers. He is also a former member of the board of Visa USA and Visa International. While at CoreStates, he worked on developing and building out the MAC shared ATM network. He and other founders started UBPS in May 2011 with a $3.5 million investment and launched a public offering the same month. The company’s shares are traded on the NASDAQ under three symbols, UBPS for the common stock, UBPSU fpr units, and UBPSW for warrants.
