Tag: Fiserv

Fiserv acquires Open Solutions and its debt

Ben Kolada

Contact: Ben Kolada, Tejas Venkatesh

Fiserv has acquired fellow financial software company Open Solutions, adding new clients and bolstering its offerings for credit unions and banks. Fiserv is buying Open Solutions from Carlyle Group and Providence Equity Partners, paying $55m for the target’s equity and assuming $960m in debt. While Open Solutions’ enterprise value (EV) this time around is about 20% less than its price in its 2006 take-private, its equity value is a much smaller fraction of the previous transaction.

In the time since Carlyle Group and Providence Equity took Open Solutions private to Monday’s sale to Fiserv, the company’s debt has ballooned. Open Solutions had roughly $448m in net debt when it announced that it was being taken private. That amounted to about one-third (36%) of its total EV. The company’s debt has nearly doubled in the past six years and now accounts for nearly all (95%) of its EV.

Although Open Solutions’ debt does appear troubling, Fiserv is recognizing some financial benefits from the acquisition. Open Solutions has had a history of losses, which means that tax breaks are available to Fiserv. The net present value of those breaks is $165m, which will ultimately reduce the total cost of the acquisition from $1.01bn to $865m.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

Preemptive consolidation in financial IT?

-Contact Thomas Rasmussen

With reports indicating that IBM has pulled its multibillion-dollar offer for Sun Microsystems, the second-largest deal of the year so far is the $2.9bn all-equity purchase of Metavante by Fidelity National Information Services (FIS) announced in early April. (Yesterday, Express Scripts announced that it will fork over $4.7bn for WellPoint’s NextRx subsidiaries.) In fact, we recently noted that the first quarter closed without a single transaction worth more than $1bn. It was the first time a quarter passed without a 10-digit deal since we began keeping records in January 2002. This transaction consolidates two active acquirers. Metavante and FIS have together inked more than 30 purchases over the past five years: FIS has completed 18 deals worth north of $7bn (excluding this pickup), while Metavante has closed 15 to the tune of about $1.4bn.

The combined FIS and Metavante will have revenue of $5.1bn, about $300m in cash after the transaction closes, and free cash flow of about $700m. However, though the management of the new company outlined its healthy cash flow as means for making further acquisitions, we don’t expect them to step immediately back into the market as the giants work on integrating the blockbuster deal. (We would note that both FIS and Metavante were out of the market in 2008.) Instead, we expect near-term consolidation to likely come from the firm’s two remaining large competitors Fiserv and First Data Corp, which Kohlberg Kravis Roberts took private for $30bn two years ago. Additionally, we could see Oracle and IBM using their vast cash reserves to buy their way into this sector. In fact, FIS and Metavante said in their conference call discussing their planned transaction that one of the reasons they were getting together was to stave off the expected competition from Oracle and Big Blue. So who might be of interest to any of these buyers? We suspect smaller players such as Jack Henry & Associates or even payments competitors TeleCommunication Systems and S1 Corp could well become targets.

Financial IT M&A by the now three largest buyers since 2002

Acquirer Number of deals Total deal value
FIS-Metavante 42 $12.7bn
First Data Corp 20 $9bn
Fiserv 28 $5.3bn

Source: The 451 M&A KnowledgeBase