Shawmut National Corp. has signed a definitive agreement to buy Interpay Inc., a Mansfield, Mass.-based payroll services company, for $12 million in cash.
Interpay, which provides direct deposit, electronic tax filing, 401(k) investment deductions, and other services, has 15,000 business clients in New England and the Middle Atlantic states.
For Shawmut, a $34 billion-asset bank based in Hartford, Conn., and Boston, the deal offers a wealth of opportunities to cross-sell its own products and services.
"Interpay is an ideal fit with our strategy to expand our nonbranch, electronic-based retail franchise as well as our small-business franchise," said Joel B. Alvord, Shawmut's chairman and chief executive officer.
The deal is expected to close in the third quarter, bank officials said. Shawmut itself is to be acquired by Fleet Financial Group Inc., Providence, R.I. The merger will create a superregional that will rank among the Top 10 U.S. bank holding companies in asset size.
Shawmut will market Interpay's payroll services to its 50,000 small and medium-size corporate customers.
Likewise, Interpay's business customers, who employ 200,000 workers, will be targeted by such marketing campaigns as Shawmut's Bank-At-Work consumer program - a package of preferred banking products and services.
Shawmut will own just less than 50% of the company and its two independently owned franchises in Connecticut and New Hampshire.
The deal will return Shawmut to the payroll services business. It had sold its client base of 2,000 businesses to Control Data Corp., now Ceridian Corp., Bloomington, Minn., in 1984.
Shawmut, BankAmerica Corp., and many other institutions sold their payroll service businesses to the likes of Automatic Data Processing Corp., Roseland, N.J., and Ceridian during the last 10 years, according to Peter Galligan, Shawmut's senior vice president.
Offering the service to large corporate customers, especially those with employees in many states, "became somewhat problematic" due to reporting requirements, diverse tax statuses, and the complexities of distributing checks across state lines.
"It became tough to compete and make money when ADP had a good product for that customer base," Mr. Galligan said.
Interpay, with nearly $16 million in annual sales, is the fourth-largest payroll services company in the nation, among an estimated 1,800, according to Kari Fazio, a spokeswoman for the American Payroll Association, Washington, D.C.
The top three payroll services vendors are, in order, ADP, Ceridian, and Paychex, Rochester, N.Y.
Aside from acquiring customer relationships, Shawmut's renewed interest in the payroll business also happens to coincide with the push toward interstate branching and likely repeal of the Glass-Steagall Act, now threading its way through Congress.
Glass-Steagall repeal should ease competitive restraints on banks that have allowed nonbank financial services companies to encroach on banking turf.
Alan Bergstrom, a managing director at Dove Associates, a Boston-based consulting firm, called Shawmut's move a harbinger of likely moves by other banks and financial institutions - "basically buying captive customer base to cross-sell their own products and services.
"If they feel this is a success," Mr. Bergstrom said, "I wouldn't be surprised if (Shawmut) goes on the acquisition hunt for other similar types of Interpay opportunities."
Mr. Bergstrom said ADP or Ceridian might easily become acquisition targets for large banks because of "the kinds of cross-sell and consumer relationships they potentially represent."
