First USA Inc.'s acquisitive payment-processing spinoff has notched its biggest prize since making its initial stock offering in March.
The unit, First USA Paymentech, announced an agreement Monday to buy Gensar Holdings Inc., the Philadelphia-based transaction processing company headed by former CoreStates Financial Corp. vice chairman Bipin C. Shah.
First USA Paymentech said it will pay $170 million in cash for Gensar as it bids to become an even bigger force in the processing of credit cards and other electronic transactions for retail merchants.
Handling 574 million transactions worth $30.9 billion in its last fiscal year, Paymentech ranks third in merchant processing, behind First Data Corp. and National City Processing Co.
Even including Gensar's 300 million transactions, Paymentech will still be well below the billion-plus volumes of its larger rivals. The Gensar buyout, which could close in as soon as a month pending antitrust clearances, is an indication of the rapid consolidation of the electronic transactions business and the economies of scale that drive it.
"There are not that many small businesses left," said Mr. Shah. He founded Gensar in 1992 with Chicago investment firm Golder, Thoma, Cressey, Rauna, and he plans to stay under contract as an adviser.
"I wanted to get to a certain size in a hurry," Mr. Shah said Monday. "I wanted a great partner to do that."
"This acquisition shows our commitment and focus in providng merchant processing solutions," said Pamela H. Patsley, president and chief executive officer of First USA Paymentech. "It is another way for Paymentech to grow aggressively and gain market share."
Paymentech has been buying business since before the recent stock issue, which left 77% of its shares in the possession of its Delaware-based parent, the top-five credit card company First USA Inc. Last year, for example, it bought Litle & Co. and DMGT Corp., the biggest processors of credit cards for mail-order companies and other direct marketers.
In common with the Gensar deal, First USA's merchant services operation had a prior processing relationship with those acquisitions. Mr. Shah said Paymentech was one of the biggest customers for Gensar's credit card authorization and draft-capture service, generating more than 20 million transactions a year.
Paymentech "had outsourced their electronic data capture to others, now they are taking it in-house," said Sanford C. Bernstein & Co. analyst Moshe A. Orenbuch. "This also allows them to market to ISOs (independent service organizations that sell merchant services) and to banks still in the processing business."
Mr. Orenbuch said the Gensar deal is in keeping with Paymentech's acquisitions strategy, adding, "You'll see them do more of this."
Within the last month, Paymentech acquired a 10,000-merchant portfolio, generating $700 million a year, from Mercantile Bancorp. of St. Louis. It also announced it would be the processor for American Midwest Bank, Melrose Park, Ill.
Robert K. Hammer, president of R.K. Hammer Investment Bankers in Thousand Oaks, Calif., said the Gensar purchase "makes good sense. The pro forma financials look good, and it gives them more volume."
He said Gensar has "complementary technology" that supports First USA's merchant processing business.
He predicted the company "will be buying other things and doing strategic alliances. It is perfectly in line with their growth plan."
