Total System Services Inc. (TSYS), a leading transaction processor, recently completed its quest to own 100 percent of First National Merchant Solutions LLC, the merchant acquiring subsidiary of First National Bank of Omaha. FNMS has been renamed TSYS Merchant Solutions following the deal.
TSYS, based in Columbus, Ga., first entered into a joint venture with FNBO in April 2010, when it acquired a 51-percent controlling interest in FNMS for about $150.5 million. In a transaction that closed Jan. 1, 2011, TSYS purchased the remaining 49 percent stake for $169.6 million.
According to TSYS President and Chief Operating Officer Troy Woods, TSYS sought full control of FNMS from the outset but was content with the initial joint venture.
"We were comfortable with that going in," he said. "It allowed us to be in the majority position. It allowed us to consolidate earnings. And it clearly, contractually, gave us, over a period of time, through several different trigger points, the ability to take on the other 49 percent."
In a media statement, Daniel O'Neill, President of FNBO, said, "We knew from the start of the relationship that TSYS was the right partner to take First National Merchant Solutions to the next level. At the same time, First National recognizes the strategic and capital benefits of completing the next phase of this venture."
The success of the initial joint venture between TSYS and FNBO apparently helped convince the bank to relinquish its minority share.
According to Woods, FNBO was "very happy" with the way TSYS handled the partnership. "Obviously, the last thing they would have done is gotten rid of the other 49 [percent] if they didn't feel comfortable," he said. "Now we have control over the entire acquiring operation of FNMS. It just gives us more visibility and ability to control our own destiny."
Based in Omaha, Neb., FNMS offers transaction processing, merchant support, credit underwriting, risk management and valued-added services, as well as Visa Inc.- and MasterCard Worldwide-branded prepaid cards. It was ranked as the 10th largest merchant acquirer in the United States by dollar volume in 2009 by The Nilson Report.
Kurt Strawhecker, co-founder and President of The Strawhecker Group, a consultancy serving the payments industry, applauded the move.
"It was the right buyer for the right seller at the right time," Strawhecker said. "TSYS and First National have been close processing partners for decades, actually, because First National has long used TSYS for their front-end processing. I think there is a common thread in terms of company personality, so I think it was a relatively safe play."
Strawhecker noted that TSYS had followed other leading processors in the move to include merchant acquiring among its services. "I think the headline here is that TSYS is now unambiguously in the merchant business," he said.
"TSYS has, for years, proclaimed that they were very neutral and would not compete with their customers, and now they have certainly joined the other processors, and I think wisely so, and become an acquirer as well as a processor."
With TSYS' complete ownership of FNMS comes fast tracking of technology integration between the two companies. "The decision about what we are going to do will be accelerated," Woods said. "Because with the older deal, we had a very long-term technology transition agreement with the bank [FNBO], so there was no rush to do it. Now that we own 100 percent of it ... there is more of an impetus to go do what you're going to do."
The senior administrative team, including Diana Mehochko, President of FNMS, will remain with the new entity, TSYS Merchant Solutions, according to Woods. "Over the course of time, we'll have to figure out where there might be some synergies and overlaps and work through that, but our general plan is that all of them stay in place, all services remain the same, and it will remain headquartered in Omaha."
Woods declined to say whether TSYS planned to absorb any additional merchant acquirers but acknowledged that mergers and acquisitions, along with organic growth, are part of its strategic plan.
"I don't think you'll see TSYS go do anything from an acquisition standpoint that is afar from our footprint," Woods said. "Anything we're looking to do for the most part, would be augmenting, complementing and expanding the current product and service sector we're already in."
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