The Global-TSYS Merger Responds to M&A Mania But Also Integrated Payments Trends

Facing major consolidation among rival processors. Global Payments Inc. and Total System Services Inc. (TSYS) made it official Tuesday they are merging in an all-stock deal that values TSYS at $21.5 billion and will leave Global with 52% of the combined entity. The acquisition is expected to close in the fourth quarter, pending regulatory and shareholder approvals. The deal is not subject to any financing conditions, the companies say.

The pending merger follows on the heels of two big processing combinations announced just since the first of the year. In March, Fidelity National Information Services Inc. agreed to buy Worldpay Inc. for $43 billion in a deal expected to close in the third quarter. And in January Fiserv Inc. said it would acquire First Data Corp. in a $22-billion deal expected to close in the second half of the year.

In light of these deals, observers expected a similar move from Global and TSYS, particularly as news of a possible agreement between the two Georgia-based companies emerged late last week. “This is largely a defensive play that was spurred by the Fiserv/First Data and FIS/Worldpay announcements,” notes Jared Drieling, senior director of business intelligence at The Strawhecker Group, an Omaha, Neb.-based consultancy, in an email message. “We are not surprised that two of the larger players left standing were contemplating their options.”

Data gathered by Strawhecker ranks Global as the eighth-largest U.S. processor, with $200 billion in 2018 volume. TSYS follows close behind with $160 billion, good for ninth place. The research ranks Worldpay second and First Data fourth.

The Global-TSYS tie-up also comes as trends toward integrated payments, software-driven processing, and services for small and medium-size merchants have become paramount. Global with its OpenEdge unit has developed a strong foothold in integrated payments, the business of weaving payments flows into business-management software for particular merchant verticals. That business will be reinforced by the addition of TSYS, which in January 2018 acquired Cayan, a major vendor of integrated services. “Clearly, the software strengths of [Global] can be leveraged across TSYS,” says Drieling.

At the same time, Columbus, Ga.-based TSYS brings an edge in point-of-sale equipment with its new Vital line of terminals, observers point out, an asset that could prove competitive with devices from newer providers and also play well with Global’s emphasis on working with integrators like independent software vendors, or ISVs. Traditional processors have struggled to match the popularity of POS gear for small merchants introduced by players like Square Inc.

“The recent launch of the Vital POS product line would/could … act as a platform for [Global]’s ISV community and/or portfolio companies,” says Drieling. “Global has been historically challenged from a low product offering so these assets will be leveraged to a heavy extent.” Global claims it works with more than 2,500 ISVs, compared to more than 450 for TSYS.

The value TSYS brings includes its strength in processing for card issuers, a business that is new to Global but will be valuable as the combined entity seeks to expand its international foothold. TSYS operates in approximately 80 countries, Global in around 60. “It’ll be very hard to be successful outside the United States without combining issuing with acquiring,” said Jeff Sloan, chief executive of Atlanta-based Global who will serve as CEO of the combined company, in a conference call with stock analysts Tuesday morning to discuss the merger.

He cited as an example moves by the European Union to require strong authentication, including the ability to verify the identity of cardholders at the time of each transaction. “By marrying issuing and acquiring, we are able to do that.” Sloan said.

Both Sloan and Troy Woods, TSYS’s chairman, CEO, and president, indicated on the call that the two companies have been talking about a possible combination on and off for some time. “Over the past decade, we’ve had general conversations about the possibility of putting these two great Georgia companies together,” said Woods. “The time is right to partner.” Woods will serve as chairman of the board of the combined company, which is expected to operate “co-headquarters” in Atlanta and Columbus.

The deal’s terms call for TSYS shareholders to receive 0.8101 Global Payments share for each share of TSYS common stock. While Global Payments will be the combined entity’s name, it will operate its issuer-solutions business under the TSYS name. TSYS’s NetSpend unit will be the name of the consumer-solutions business.