3:00 A.M. — ‘evening, GonzoBankers! Hope the new year’s treating you right and keeping you mellow. The Command Console here at GonzoCentral is lighting up like NORAD on X with all of the bank and vendor M&A transactions going on. Makes for some interesting lunch break know-it-alling among the Brain Trust at Cornerstone/GonzoBanker.
One deal that I have to admit has confused me, maybe even freaked me out a bit, is the recent announcement that Fidelity Information Services has agreed to purchase Gomez, the “Internet benchmarking and improvement strategies firm” probably best known as the dudes who rate banks’ Internet banking functionality. I truly fail to see the fit here. I mean, we could see some serious culture clash when what I perceive as the MP3-listening hipsters at Gomez sit down for a brainstorming session with the blue suits and tie pins from FIS.
Jan 29, 11:00 A.M.
Tons of questions these boys are going to have to answer. What’s the strategic fit for FIS? Is there an inherent conflict of interest when Gomez rates an FIS client’s Internet banking channel? These are all questions that ….
Huh? Oh. Well, aren’t I embarrassed. My young assistant/masseuse just read over my shoulder these first brilliant lines and has informed me that I’ve got it all wrong, Exalted Readers. FIS bought another bank technology-related company that ends in “ez”… Sanchez Computer Associates, Inc., the mainly international provider of core and ancillary banking technology. Hell, that changes everything.
Jan 30, 9:00 A.M.
After gathering the Gonzo consultants again to discuss the Sanchez deal, I shall now deliver to you GonzoBanker’s take on the FIS-Sanchez deal. Like my comments on the FIS-ALLTEL deal nearly exactly one year ago, I can’t claim some or even most of the dead-on takes you’ll find below. It just happens that my turn in the rotation came when the deal was announced, so I’ll report the official, collective Gonzo take on the situation.
What We Like About This Deal
First, the price seems in the reasonable range. All in, the Sanchez stockholders are likely a little more happy, relatively speaking, since they received a 16% premium over their closing price (or a bit under 2X revenues) after the deal was announced – at a time when Sanchez was clearly experiencing financial trouble.
We do see some very positive attributes to this deal. Sanchez, with negligible domestic experience but deep international ties, can definitely open some international doors for FIS, an area in which FIS is pretty clearly trying to expand.
The Sanchez brothers and development team plainly have the respect of the technology community, and they should be a real asset to FIS should they stick around FIS for any length of time. (We’ll see about that…)
Finally, the financial strength of FIS parent Fidelity National Financial Inc. could well help Sanchez secure some deals that it would have otherwise lost due to prospects being skittish about Sanchez’s financial condition.
What Stinks About This Deal?
Despite the press releases to the contrary, this is a revenue grab by FIS. The chairman and CEO of Fidelity National, William Foley II, described the reasoning behind this deal as follows: “We have a piece of Swiss cheese with FIS. We’re filling in the holes.” Now, far be it from us to criticize a company for making a buy to beef up its revenue base, but let’s face it, this purchase really isn’t filling any significant hole at FIS. Sanchez has a nice international presence and a handful of smaller specialty installations and direct banks domestically, but not a whole lot that can be leveraged by FIS. The WebTone and H&S purchases were clearly strong, strategically motivated buys, but not Sanchez. But, hey, who’s criticizing the purchase of a company with a nice product while adding 10% to the top line? Not us.
There has been speculation that Sanchez’s Profile product will replace the less modern FIS IMPACS DDA product over time. One thing we want to make very clear is that THIS WILL NOT HAPPEN. Not in a bazillion years. In an American Banker article, Celent analyst Christine Barry suggested that “Fidelity National will likely sunset IMPACS” as a result of the Sanchez buy. FIS’s Foley stated that while the company has no plans to sunset IMPACS, the door was open for IMPACS users to migrate to Sanchez. Oh, for the love of all that does not make us vomit, please stop. First, is FIS really saying that a product that, at its heart, is MUMPS-based is going to be the cutting edge future of its core processing? The jury’s seriously out on that one. And what would happen to the FIS CIS product?
More importantly, you have to understand the profile of an IMPACS user. We’re talking large ($10 billion+ in assets for the most part) hardcore POD bruisers with thousands upon thousands of hours invested in customizing IMPACS, squeezing off millions of transactions daily. These are guys who burn with lust when you talk big iron, who are macho in their deep-held belief in lightning speed mainframes the same way Dr. Hunter S. Thompson believes in fast motorcycles:
“Some people may tell you that slow is good – and it may be, on some days – but I am here to tell you that fast is better. I’ve always believed this, in spite of the trouble it’s caused me. Being shot out of a cannon will always be better than being squeezed out of a tube. That is why God made fast.”
Does that sound like a crew that is going to gaily skip over to Sanchez’s Profile system, an “online, customer-centric, strategic core processing system for deposits and loans for financial institutions of any size?” That’s more than an uphill battle, guys; FIS could well be arrested for inciting a riot in many states.
Readers, let us pray for the FIS reps who have to make even the IMPACS to Sanchez migration suggestion. They will be met with mean-spirited, potentially violent CIOs nationwide, ready to react to an IMPACS sunsetting/migration like Mr. Thompson describes the U.S. invasion of Grenada: “Bash the buggers silly; bomb the insane; walk heavy, talk wild, and kick ass in every direction.” This will not be pretty.
We’re not sure if the IMPACS to Sanchez migration is just spin or naiveté’, but you heard it here first, it will not happen in any significant scale at all. Not a bad pickup by FIS in terms of a 10% revenue bump, maybe signing on the esteemed Sanchez brothers, and possibly getting some doors opened internationally. But let’s drop the strategic synergy/IMPACS migration talk and avoid a revolution.
That’s our take, anyway.
-smh