Two payment transaction software and service providers, S1 and Fundtech, have agreed to a "merger of equals" today in a deal valued at $700 million. Upon closing of the transaction, S1 shareholders will own approximately 55 percent and Fundtech shareholders approximately 45 percent of the combined company. The combined company will be headquartered at S1's headquarters in Atlanta and will be called Fundtech.
S1, which is close to $400 million in revenue, provides payments, online banking and branch banking software to 3,000 banks in 75 countries. Jersey City-based Fundtech provides back-office payment systems to 1,000 banks, including BofA, HSBC, and Barclays, in 70 countries. "Fundtech has always been viewed as innovative for its technology, whereas S1 has been known for its breadth and depth of functionality," says Johann Dreyer, CEO of S1 and of the combined company, who spoke to Bank Technology News in an interview this morning. "Our product sets are complementary, yet we sell to the same profile of customer. Where we overlap, our sales forces will be strengthened."
"We'll be like one big airplane with two engines," says Reuven BenMenachem, CEO of Fundtech, who also spoke to us this morning and who will be executive chairman of the post-merger organization and responsible for international markets.
Aite Group research director Christine Barry was bullish on the merger. "While surprising, both companies have much to benefit," she said. "As two leaders in the cash management space, there will be an opportunity for the newly combined company to establish a dominant role in that market. Additionally, Fundtech will be able to expand its product offerings vertically not only into consumer online banking, but also voice, branch and lending. It will also better position the company to take advantage of opportunities in the small institution space. Its success in this market had been limited in the past due to its lack of a retail offering. S1 will also benefit from Fundtech's stronger end-to-end payments capabilities and financial stability. Both will enjoy new cross-selling opportunities."
The one area of product overlap, Dreyer says, is cash management.
"S1 has been successful selling its cash management solution in the U.S. and global markets," says Dreyer. "Whenever we sold this to a bank, that bank needed to get payments generated by our front end out into FedWire, ACH, etc. It always had to integrate with a different vendor; in some instances that was Fundtech, in other cases it was an in-house system or a competitor to Fundtech. Now we can go in with a comprehensive package with not only front-end but back-end technology as well."
Over time, Dreyer says, the plan is to create a future version of the two companies' cash management products that would take the best of both programs. However, he also says cash management is a relatively small piece of the combined company's business.
Dreyer sees many opportunities for the two entities to cross-sell each others' products in various geographic regions. "Fundtech recently signed up a major African bank and we have a significant footprint there; we would be able to expand that through our sales forces there. We have a product for card payments in India and we've used India as R&D center; Fundtech has a business there that has sold to a significant number of Indian banks."
According to BenMenachem, the two companies are committed to supporting existing products. "We acquired a cash management business from CheckFree in 1998 and we still support that product," he notes. "The company is very focused on customer service."
