There’s a new face in the bank tech family portrait – the slightly tobacco-stained smile of M&F Worldwide Corp. On 12/20/06, M&F Worldwide announced the acquisition of John H. Harland Co. for $52.75 per share – a whopping $1.7 billion cash deal that represents a near 20% premium on Harland’s trading price at the time of announcement. All of this by a company that most people in our industry have never heard of, so here’s a quick profile on M&F.
Pre-Harland merger, M&F is composed of two oddly paired companies. I guess you could say M&F is involved in two dying industries:
Strange marriage, but true. Add even more checks, Scantron and the bank technology divisions from the upcoming Harland acquisition, and M&F has a downright eclectic array of businesses. Not problematic, but definitely diverse. And definitely funny. I’d like to sit in on M&F’s fall strategic planning sessions if for no reason other than to witness happy hour. Tainted love, Chachi. Chemists with cigars hitting on the check divisions’ Font Designers who are ignoring the Chemists in favor of Scantron’s nutty #2 Pencil Specialists. DJ dancing ’til dawn!
First things first. The nerve of them. Just one day after the publication of the much-awaited 2006 GonzoBanker Awards, M&F announces the Harland acquisition. Coincidence? I think not. The marriage of Candy and Big Tobacco and Checks and Banking is so chock full o’ potentially scandalous awards that M&F had to delay the announcement or face a thorough roasting from GonzoBanker.
What does all of this mean to our bank and credit union clients? Well, this deal on its own should not be a serious difference-maker except for the obvious consolidation that is sure to take place on the check printing side of the business. On its surface, the deal has the potential to be a true yawner. But a closer look might make some readers squirm a bit. Nothing earth shattering, but at least interesting from a few perspectives:
Harland Financial Solutions Clients – You can’t read a trade rag on the M&F/Harland acquisition topic without some pretty smart people speculating that M&F will spin off the financial software portion of Harland. But, man, it would seem to make sense from our admittedly self-serving perspective for M&F to retain the high margin software company, let Harland do its thing and make the beefy margins for the parent. Consolidate the check operations. Let the licorice boys make smokes taste better. Keep the software company around to offset the shrinking check and tobacco markets. I don’t buy and sell businesses for a living, but that strategy sure makes some gut sense.
Harland’s Core Clients – Quite a few of Harland’s core clients are bound to be sick and freaking tired of the acquisition roller coaster. Harland’s Phoenix core clients will now be dealing with their fifth vendor ownership group this decade (predecessors include the original Phoenix International, London Bridge, Fair Isaac and Harland). Users of Harland’s Sparak core system will be shaking the hands of its third vendor owner in just over four years (predecessors are Sparak Financial Systems and Harland). On the credit union side, UltraData – a pretty solid core product now owned by Harland – over the years has been passed around like the stomach flu on a cruise ship.
There’s the uncertainty factor of your core vendor changing hands. And then there’s the fact that new ownership generally means at least some new senior management. And new senior management means new middle management. And all of that combined very often means new product direction and development priorities. A constantly changing development plan makes bank CIO and CEO temperatures rise as they try to find traction during technology and strategic planning sessions.
Harland’s Checking Clients – More than one stock analyst and banking publication has mentioned that this deal could do wonders to stop the price wars going on in the check printing business. What no one has come right out and said is that a slowdown in the price wars among check vendors hurts those benefiting from those wars – banks and credit unions for the most part. It’s not going to sink any ships, but bankers can probably look forward at least in the short term to a slowdown in price reductions for checks.
Regulatory Scrutiny – This deal has some serious FTC implications. If you think BSA regulatory scrutiny at banks is high, check out the numbers below:
|
Pre-Merger |
Pre-Merger |
Post-Merger |
|
| Deluxe |
$509 million |
34% |
34% |
| Harland |
$493 million |
33% |
NA |
| M&F (Clarke American) |
$474 million |
32% |
65% |
Source: American Banker, 12-21-06
Mmmm…an acquisition that results in a company assembling nearly two-thirds market share. That’s bound to make some ambitious, pencil-necked attorneys at the FTC sweaty in their palms. They were made for this. They’re flexing in the mirror, practicing their most menacing glares and barking things like, “Go ahead, mess with antitrust statute 18 USC 2490.32.” A few of my sources at Harland seemed downright… worried?… optimistic?… that the FTC would see the numbers above and put the kibosh on this deal, maybe with good reason.
GonzoBanker is starting you off mellow and relatively uncontentious this year. Easing you into another year of hard work. The Harland acquisition is no nail biter like some of the others we’ve seen recently. It’s not particularly controversial or perilous. But it could get interesting for Harland’s core customers having to endure yet another change in ownership and, potentially, management. For the sake of our clients, we truly do hope to see M&F let the financial services unit at Harland operate relatively autonomously and continue to successfully plug away at the market.
So, GonzoBankers, are you ready for 2007? Ready to buckle the chin strap, make some hits and take some hits? Damn right we are. Remember the words of one of America’s poet treasures, Charles Bukowski: “There’s nothing worse than too late.” Kinda lights a fire under you, no?
Here’s to a fun and prosperous 2007, GonzoFreaks!
–smh
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