In the 2002 GonzoBanker Awards, Terence Roche, one of Gonzo’s top scribes, predicted that at least one of the top five core data processing players would be acquired by a competitor in 2003. Well, Mr. Roche was half-right, and we’re not yet through January. A major core player acquisition was indeed announced this week; only the buyer was not a competitor.
This Wednesday it was announced that title insurance juggernaut Fidelity National Financial Inc. (FNF) will purchase the financial services division of ALLTEL Information Services (AIS), a sub of ALLTEL Corporation, for $1.05 billion – $775 million in cash and $275 million in stock.
We all knew this one was coming; it was only a matter of When, right? I mean, a huge telco buys a bank data processing outfit; even the Harvard crowd giggles at the synergy story ALLTEL tried to tell; they put an investment banker at the helm… and they’re not positioning the company for future sale? Right. It didn’t take a GonzoBanker to sniff that one out.
The AIS sale garnered little more than a collective yawn in the market. In today’s jumpy investor community that loves a good excuse to Panic, the AIS announcement was greeted with minimal movement in either company’s stock price. Both traded at higher than normal volumes after the acquisition was announced, but there was no significant gain or loss in either company’s price.
I wish I could take credit for all of the dead-on takes that are about to get laid upon you, Fans and Detractors. No, what follows is GonzoBanker’s collective, BS’ing-around-the-lunchroom-table reaction to the ALLTEL deal:
From a corporate perspective, this was a potentially beneficial transaction for all involved. ALLTEL may have left some money on the table, and its talk of selling AIS to improve its ability to focus on the telco side of the business smacks of a Marketing intern’s first spin assignment. But the bottom line is that ALLTEL did get $775 million cash money to either fund current obligations or purchase, at fire sale prices, telco competitors who are flailing.
FNF acquires AIS at a relative bargain basement price of 1.3X revenue. FNF’s press release says that this purchase:
From an FNF point of view, this deal was really about CPI, AIS’s mortgage servicing giant, don’t you think? True, the $820 million in sales from AIS will add around 15% to FNF’s revenue base and diversify the firm’s mortgage origination-dependent earnings stream. But the real Fit is having CPI’s back end processing to complement the front end strength of FNF. AIS’s contacts at national and community banks might help cement relationships on the mortgage side of the world, but the AIS commercial and retail relationships really won’t open many doors for FNF.
AIS’s customers, particularly the former Systematics (mainframe) clients, should be unclenching their buttocks right about now. First, conservative bankers will likely be more comfortable with their processor being owned by a relatively stable insurance company than by a player in the volatile telco industry.
And given that an AIS sale was Inevitable, AIS clients could do a lot worse than FNF as a buyer. Had Sr. Roche been correct and the AIS acquirer been another core player, the current AIS customer base would be coming down with a foul case of the sweats. Despite the would-be press releases of a win-win deal, AIS customers would be facing the unavoidable full or partial forced migration to the new parent’s product line. This type of jammed-down-your-throat migration understandably conjures up bad blood between bankers and vendors like few other disputes can.
While the AIS customer base will have to work with a new corporate philosophy, day-to-day operations should not change dramatically while the two companies work to get integrated. Things could eventually get sticky, particularly for users of non-mortgage related AIS products. We don’t know anything our Devoted Readership doesn’t know, but we do wonder about the long-term fit between FNF and the non-mortgage AIS product lines.
AIS Management and Employees
With any luck, FNF will acknowledge its inexperience in bank data processing and allow the former AIS to operate with some modicum of autonomy. No, AIS has not been growing much over the past several years, but profitability reportedly has been improving. We hope that FNF gives its new stepchild some time to turn itself around before it steps in and makes wholesale senior management changes.
AIS employees should come out of this OK. Both the national and community bank divisions of AIS are full of hard working, dedicated employees who should make the transition to FNF with relatively few casualties.
This deal is both good and bad from your trusty consultants’ perspective. A more whacky acquirer or another core processing acquirer of AIS would definitely have led to more banks engaging more consultants in system selection processes in the short term. But long term, the last thing this industry needs is Less Competition, the sure result had another core player bought AIS.
While we buy very little of the synergy story from FNF and even less about the sale being about focus on telco from ALLTEL’s perspective, this could have been much, much worse, Chachi. In fact, we see very little short-term trouble in what could have been a terrifically disruptive sale of an industry leader.
I could really use an Internet banking vendor acquisition to keep up with Mr. Roche on the Prognostication front. C’mon, surely there’s a waste management or retail conglomerate that needs to jimmy its image with the acquisition of a young, hip Internet banking company…