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S1 confirmed Friday that its planned merger with Fundtech has been terminated. But S1's board still does not want the company to be bought by ACI Worldwide, which has made repeated hostile bids for S1 in recent weeks.
September 16 -
The board of the payments technology vendor Fundtech plans to halt its intended merger with S1 after receiving a separate offer from the private equity firm GTCR.
September 15 -
S1 has postponed the shareholder meeting it scheduled to vote on its planned merger with Fundtech. The meeting, originally scheduled for Sept. 22, is now planned for Oct. 13. S1 still faces a hostile bid from ACI Worldwide.
September 9
Lost in the drama — and it was drama, as the payments technology world goes — of Fundtech Ltd.'s cancellation of its merger with S1 was an answer to the most important question: why?
To put a finer point on it: why did Fundtech find it worthwhile to pay S1 an $11.9 million breakup fee to go with private equity firm GTCR?
Under a private owner, Fundtech will have opportunities to expand and gain more flexibility than public companies typically enjoy, Fundtech officials say.
The first opportunity is to merge with BankServ, a vendor GTCR bought in August.
"That would be a larger acquisition than Fundtech has made in the last 10 years combined," says George Ravich, Fundtech's chief marketing officer and an executive vice president.
Fundtech spends about 20% of its revenue each year on research and development, and it has been limited in its ability to push beyond that, he says.
"A lot of times we're forced to invest only when we're able to have a customer make some sort of commitment to what happens on the other end," Ravich says. Under GTCR, if Fundtech wants "to do something big and important and expensive, this [acquisition] will enable us to do that. … GTCR has a proven track record of nurturing the companies they take private."
The GTCR deal, valued at over $400 million, would also enable Fundtech to make acquisitions that might have been impractical otherwise. "It's very hard, quite frankly, as a small public company, to invest strategically," Ravich says. By going private, Fundtech can "invest in things that don't necessarily have a payoff today."
GTCR plans to run the combined GTCR/BankServ from Fundtech's Jersey City, N.J., headquarters. It would be called Fundtech Inc.
Though Fundtech considers this plan to be a better path than merging with S1, Ravich acknowledges the differences.
"BankServ is a smaller company than S1," with fewer product lines, fewer customers and smaller distribution, he says. However, its strengths are in "areas that we're strong in," Ravich says.
Both companies are service bureaus for Swift, an international bank consortium that sets financial messaging standards. In combining Fundtech and BankServ "we're almost doubling the number of customers that we have, so that by far makes us the largest Swift service bureau," he says. "Those customers are absolutely ripe for us cross-selling other products."
S1, of Norcross, Ga., agreed Friday to terminate its merger with Fundtech after receiving the termination fee. ACI Worldwide Inc. has been pursuing a hostile bid of S1, which S1 has been resisting in favor of a deal with Fundtech. S1 is still resisting ACI's advances.
GTCR says it was pursuing Fundtech since before the S1 merger was announced, but Ravich says "the conversations got way more serious after the announcement of S1."
Fundtech is currently committed to its plans with GTCR, but there is always the chance that even this deal could be disrupted, he says.
"We were certainly not expecting ACI to make a hostile takeover bid for S1 -- I don't think anyone was expecting that at all," Ravich says. "And if there's anything I've learned in the last couple of months, it is: It's not over till it's over."
As with any company going through an acquisition, Fundtech must remain open to other offers, he says.
"It could get disrupted," Ravich says, but "of course we don't want that to happen. I think we've all had enough."
