Leading acquirer Total System Services Inc. (TSYS) revealed its intention to acquire TransFirst Holdings LLC for $2.35 billion. If approved, the transaction would make TSYS the eighth-largest merchant acquirer in the United States, with nearly 600,000 merchant locations generating $90 billion a year in bankcard payments, according to an analysis by First Annapolis Consulting.
First Annapolis noted that the acquisition, which still requires regulatory approvals, is the third-largest combination of acquirers since 2009. It is also the second combination of leading merchant acquirers to be disclosed in recent weeks. Global Payments Inc. stated in December 2015 that it would pay $4.3 billion to acquire Heartland Payment Systems Inc. That deal is expected to establish Global as the sixth largest acquirer, with 996,300 U.S. merchant outlets and $234.2 billion in yearly U.S. bankcard volume, based on 2014 data, First Annapolis said.
"TransFirst significantly increases our scale and opportunity within the highly attractive merchant space, and particularly the profitable and fast-growing small and medium-sized business segment," said Troy Woods, Chairman, President and Chief Executive Officer of TSYS. With the added strength of TransFirst, TSYS will be uniquely positioned with significant scale and strength across issuer processing, merchant services and prepaid program management.
Woods added that the deal would also help bolster the TSYS' position in high-growth areas like e-commerce, omnichannel services and integrated payments. TransFirst, for example, works with more than 1,300 integrated technology and referral partners; among them are integrated software vendors, e-commerce companies, referral banks and others.
The initial market response to news of the TSYS-TransFirst combination was less than overwhelming. Shares of TSYS were down the morning of Jan. 27, 2015, by as much as 11.78 percent. Also, Standard and Poor's Ratings Services lowered its credit and debt ratings on TSYS by two levels, from BBB+ to BBB-, after the company had to borrow money to complete the purchase, according to a report by Bloomberg.
TransFirst has operated under various corporate monikers, including ACS Merchant Services, and is owned by the private equity firm Vista Equity Partners, which as recently as October 2015 was readying the company for an initial public offering. Vista purchased TransFirst from Welsh, Carson, Anderson & Stowe in 2014, reportedly for $1.5 billion, scuttling Welsch Carson's IPO plans for TransFirst.
An analysis of TransFirst's latest planned IPO, posted in October 2015 at Seeking Alpha, indicated the company had over $1.1 billion in long-term debt. "TransFirst would easily be turning positive earnings if it wasn't for the huge burden of debt," wrote Nicholas Durante, Research Analyst with Celestial Market Research. "However, with that debt you get significant growth," he said, adding that they "are on track for almost $1.6 billion in revenue for 2015," which would represent a 68 percent increase from 2012 to 2015.
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