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TransFirst: TSYS’ Latest Catch

January 29, 2016

So you thought credit card and payments processor TSYS took its most significant acquisitions step when it snapped up prepaid card provider NetSpend for $1.4 billion in 2013? Guess again. The firm announced Tuesday that it is making another large acquisition—the biggest in its history—with the purchase of merchant services provider TransFirst from Vista Equity Partners. The $2.35 billion, all-cash deal is expected to close in the second quarter of this year, pending regulatory approval.

This latest acquisition will make TSYS the sixth-largest U.S. merchant acquirer in terms of net revenue, with more than 645,000 merchant outlets nationwide on its roster of clients. The combined TSY/TransFirstmerchant operation will reportedly generate approximately $117 billion in annual sales volume from handling some 1.2 billion transactions per year. More importantly, with TransFirst’s customer base under its umbrella, TSYS will become a more formidable competitor on a larger playing field. In addition to retail operations, that base includes software vendors, health care providers, not-for-profit entities, banks, and online commerce players.

“With the added strength of TransFirst, TSYS will be uniquely positioned with significant scale and strength across issuer processing, merchant services, and prepaid program management,” TSYS Chairman, President, and CEO Troy Woods said in a statement issued when the acquisition was announced. “I believe our ability to offer market-leading services through this distribution network and across the payments spectrum will be unmatched.”

Woods will be joined at the helm of the combined operation by John Shlonsky, current president and CEO of TransFirst. Mark Pyke, TSYS’ senior executive vice president and president of the TSYS merchant business line, is leaving the company to pursue other interests within the payments industry, the firm said.

Meanwhile, a few factors indicate that the acquisition will prove to be a positive step for both entities involved. For one thing, it should allow TSYS to sharpen its own competitive edge by playing off TransFirst’s strength to enhance its merchant business. As Woods told industry analysts during a conference call that followed the announcement and the firm’s earnings report release, “The U.S. (merchant) acquiring market is a very large market;” the sector is currently valued at $13 billion. “At the end of the day, TSYS needed to enhance its merchant business in order to remain competitive in the rapidly changing acquiring landscape.”

Then, there is the seemingly firm alignment of the two companies’ cultures and the foundation of their existing relationship: During the conference call, Shlonskynoted that TransFirst and TSYS have been “partners for quite some time,” with the former having utilized, and continuing to utilize, TSYS’ front-end, back-end, and gateway services. He added that his interaction with TSYS, particularly its executive team, renders him confident that “our values and how we treat each other and our clients are firmly aligned.”

Precautions being taken on the revenues front also seem to bode well for the future. TSYS CFO Paul Todd told analysts participating in the conference call that the company will cut back on stock repurchases until it “digests” a portion of the cost of the acquisition, and until TransFirst “ramps up” into the TSYS revenue stream.

Sounds like a good plan all around.

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