Scottsdale, AZ – 114 degrees in the freakin’ shade, GonzoMongers, and still we thrive. For unknown reasons, core system selections have been boiling for a good 12 months now, leaving consultants, vendors and bankers alike running feral like a pack of mean-spirited Chihuahuas after a batch of cheap trucker speed.
Maybe that’s why it’s been a semi-slow year on the M&A front for our vendor comrades. No time for buying when you’re doing all that selling, right? Unlike 2000 and 2001, the vendors have been fairly quiet in their acquisitions this year and last. At halftime every year, GonzoBanker likes to analyze the major M&A activity in the core vendor market. Here goes:
Fidelity National Financial (FNF) – The big ‘un this year has been FNF’s purchase of the financial services division of ALLTEL Information Services. I won’t pound this one into the ground because we already dedicated precious Gonzo column inches to the transaction (see All Told, ALLTEL Deal Nothin’ But a Thang). Bottom line was that we thought that the deal was really about acquiring CPI, AIS’s mortgage servicing giant. We questioned the non-real estate-related ALLTEL divisions’ longevity under the FNF umbrella.
And then FNF ups and buys Hamilton & Sullivan, the online banking/cash management/account analysis software vendor. The buy was a pretty obvious move to fill several gaping holes in the FNF banking product suite. So much for our theory of FNF eventually jettisoning everything but the CPI division. We see this move as a fairly clear vote of confidence in at least some of the non-CPI companies acquired from ALLTEL. The press release I read mentioned nothing about the post-transaction whereabouts of H&S’s contagiously energetic leader, Rick Hamilton. Rick, I hope you’re on a beach somewhere sipping Mai Tais and feeling right.
Fiserv – The Fiserv banking division M&A team must be well known in the Marriotts and Hiltons in and around Plano, Texas. They’ve been doing a little bidness with the boys over at EDS. First, they bought EDS’s Consumer Network Services (CNS), the company’s ATM and transaction processing division. With EDS apparently bailing out of the financial services industry as quickly as possible, we bet the price was right for this transaction. The deal also firmly placed Fiserv into the top five EFT processors nationwide. Not a bad call at all by Fiserv here.
Now, it looks like a deal is in the works for Fiserv to acquire EDS’s credit union industry group – namely Premier, CUBE and a handful of lesser known core products. Any time Fiserv is involved in a deal, you have to assume the numbers work. But Fiserv already has at least seven credit union products – Summit, XP, USERS, AFTECH, CUSA CUMS, GalaxyPlus, RELIANCE – none of which is exactly enjoying market momentum to write home about. Add to that group the Premier and CUBE products, both relatively stagnant at best, and I smell major product consolidation on the Fiserv credit union horizon if this deal happens. But I think Fiserv is going to have some ‘splaining to do to get past the regulatory hurdles that owning a reported 34% of the credit union processing market will create.
And let’s not overlook Fiserv acquiring core provider Precision Computer Systems (PCS). With PCS being managed under Fiserv’s ITI division, there are bound to be some PCS clients worked up over the prospect of being pushed to the ITI product line. That’s certainly not the Fiserv company line, but I would not be surprised to see at least some gentle nudging of PCS customers to the ITI platform.
Aurum Technology – In keeping with its history over the past couple of years on the banking side of the world, Aurum has purchased credit union core player Computer Consultants Corporation (CCCorp), a core provider to small credit unions.
I see three angles to this deal. One, remember that Aurum is VC-owned, and this deal will add some ever-welcome revenue to Aurum’s top line. Two, the deal underscores Aurum’s commitment to the credit union industry. Though Aurum has enjoyed some success in the large CU market, credit unions in general are not known for embracing vendors from the banking world. This transaction will help to establish Aurum as a more traditional member of the CU community and complement the Aurum MISER product’s niche in the large CU market. Third, CCCorp’s Hugh Butler will remain on staff at Aurum. Hugh brings a wealth of experience and respect in the credit union community that can only help Aurum going forward.
Due to the vast difference in asset size between Aurum’s MISER customers and the CCCorp client base, I don’t see much chance of a forced push of any CCCorp credit unions onto MISER.
Open Solutions Inc. (OSI) – OSI has been snatching up ancillary product providers like FTI and Sound Software for some time. But now OSI has announced a strategic alliance with credit union player Liberty Enterprises, which includes the purchase by OSI of Liberty’s FiTECH Systems core product line. Like the Sound acquisition, this is not exactly a scenario of OSI buying another product with the same high tech reputation that its own core products have.
The reasoning behind the OSI-Liberty deal mirrors that of the Aurum-CCCorp transaction:
In the OSI press release, Hollen stated that though the FiTECH product will continue to be supported, existing FiTECH customers will have “the option to convert to what we believe is the best credit union data processing system available.” If I’m a larger FiTECH customer, I’m brushing up on my Oracle skills and scouring the Work Wanted ads for talented folks with experience converting credit unions to OSI.
Harland Financial Solutions (HFS) – Continuing its push to be a player in both the banking and credit union core processing worlds, HFS bought Premier Systems, Inc. from the Iowa Credit Union League for $16 million in cash – just over 1X revenue. The significance here is that Premier is a service bureau for a core product based on HFS’s ULTRADATA credit union core processing solution. This deal will allow HFS to boast the ability to deliver ULTRADATA either in-house or via service bureau, an important element of flexibility to many credit unions when selecting a core processing provider. Plus, the deal should grease the skids for cross-selling opportunities of HFS’s many ancillary products into the PSI client base.
Metavante – Conspicuous in its silence has been the core division of Metavante. That said, new skipper Frank Martire does not exactly have a reputation for being acquisition-averse. I look for Metavante to be much more active in the next 18 months.
While quantity has been low this year, we’ve had some interesting deals. Nothing insanely extravagant or mind-blowing yet, but there’s time. Still looking for that major Internet banking vendor contraction this year (see Gonzo Predictions for 2003 in The 2002 GonzoBanker Awards).