Honor Network Takes M&A Route to Success

On top of everything it takes to run one of the biggest electronic banking networks in the country, Thomas O. Bennion has something else on his mind: mergers and acquisitions.

The president and chief executive officer of Honor Technologies Inc. of Maitland, Fla., has never been one to stand pat. He long ago steered the company into profitable services beyond transaction processing, including terminal driving, home banking, and debit card issuance.

Meanwhile, in a series of deals since 1990, Honor has transformed itself from a transaction-switching system confined to Florida into what is at least by one measure-the number of automated teller machines-the largest regional system of its kind.

Mr. Bennion attributed the growth to member banks' expansion, the company's ability to plan, and a dedicated staff that has mushroomed to 295 from 23 in 1990.

The core business of switching transactions has seen no end to growth.

Volume nearly doubled between August 1996 and June 1997, fueled by 1996 merger deals with Alert, of Birmingham, Ala., and in one of the biggest of all superregional combinations, with Most, of Reston, Va.

Honor didn't stop there. It will gain a foothold in the Midwest when it completes the acquisition of BankMate in St. Louis from MasterCard International Inc.

Including BankMate, Honor's transaction volume through its central switch would rank second to that of Electronic Payment Services Inc., the Delaware-based operator of the MAC network, and just ahead of No. 3, Star System Inc. of San Diego.

BankMate's more than 4,000 automated teller machines would bring Honor's industry-leading total to 32,200.

On a recent day at the head office, Mr. Bennion, 58, took advantage of the casual dress policy by donning the crisp blue denim bowling shirt usually worn on the company's night out at the lanes.

Emblazoned on the shirt is the Honor logo-transformed from the original purple to the green of the old Most network. Below the emblem, a bowling ball sends pins flying.

Though Mr. Bennion speaks modestly about his skills between the gutters, industry observers say the company scored two strikes in the Most and Alert transactions, and he agrees.

"Usually what bites you is the stuff you don't know," he said. In the planning process there weren't "too many 'gotchas' out there. And when there was one, they solved it pretty quickly."

Honor did not come into the merger game cold. It was able to draw on experience from 1990 mergers with Relay in the Carolinas and Avail in Georgia, said Mr. Bennion.

"It can be almost a cookie-cutter approach," said Michael A. Strada, who served as Honor's first president and chief executive officer and is now president of Electronic Commerce Strategies Inc., a consulting firm in Atlanta.

With Most and Alert, Honor set out 500-step plans covering technical and business concerns.

The business aspects involve meetings with processors and members, as well as mailings and marketing issues. For instance, as an incentive to members, Honor is offering a discount for financial institutions to accelerate their changeover to the new green logo.

All are required to display the image at terminals by yearend 1999.

On the technical end, a six-member testing and certification team works with processors converting to the Honor switch.

In February, Honor performed a "flash-cut" transition, moving Alert's 22 processors all at once from Wisconsin-based Deluxe Data Systems, which provided the switching service for Most, to the Honor platform.

For technical reasons, Honor is integrating Most in a more piecemeal fashion. The company has transferred 70 of the 100 Most processors to the Honor switch, said Curtis D. Fish, executive vice president.

More processors are converted weekly, with completion scheduled for the first quarter of 1998. Mr. Fish, who had been running the day-to-day operations of the network, has been recently concentrating on the merger and consolidation tasks.

One challenge he and others faced with Most was how to integrate a network whose members were accustomed to different rules and procedures. Members of Most, for example, received reports from Deluxe that the Honor system was not configured to duplicate.

Honor faced the decision of continuing that service at a high cost, or leaving the generation of reports up to individual processors. Because Honor's decision changed the procedures for Most members, they were informed early to ease the transition.

"What you're trying to do is make it transparent for the member," Mr. Bennion said. "They've already chosen their processor."

The problem-solving demands won't end anytime soon if the wave of bank consolidation continues. Honor has benefited from the expansion of some of its members, such as Charlotte, N.C.-based superregionals NationsBank Corp. and First Union Corp.

With NationsBank gaining a presence in the Midwest by acquiring St. Louis-based Boatmen's Bancshares in 1996, it made sense for Honor to follow, Mr. Bennion said.

"New geography is driven by where your membership goes," said Mr. Bennion. "It's like building a shopping center. You don't want to go in there without an anchor tenant."

With the BankMate purchase, which is awaiting federal regulatory approval, Honor is in the initial planning stages for a conversion that will involve moving BankMate's 60 processors to the Maitland switch. Mr. Bennion said the merger will be complete about a year after approval, or by the fourth quarter of 1998.

For BankMate members, Honor plans to streamline pricing but will recognize contracts predating BankMate's acquisition by MasterCard in 1994. The network's earlier owners, which included Boatmen's, had special rates under contracts that expire in 2000.

After that, Mr. Bennion said, the pricing will be "volume sensitive (and) we will put in a set of rules everybody plays by."

Honor has come a long way since it was organized as Southeast Switch Inc. in 1983 by Mr. Bennion-who came from the defunct Southeast Bank of Miami-with 10 banks pitching in $500,000 each.

Now, with the moniker Honor Technologies, it has 47 equity owners.

Meanwhile, Honor has jumped headlong into what it calls nonbranded services. In 1993 it acquired Electronic Transaction Services, a business unit of the former South Carolina National Bank that specialized in ATM terminal-driving, off-line debit cards, home banking, and card production. Last year Honor hired electronic banking veteran Paul Schmelzer as executive vice president of that division, Honor Services. He spent 10 years with Deluxe Data and played a role in starting Wisconsin's Tyme network in the 1970s.

"Like any organization you can absorb just so much change," Mr. Bennion said. "It's like cooks in a kitchen. After a while you can put a dozen more in there, (but) you just can't crank out any more dinners."

Nevertheless, the network has dropped several hints that it is still on the prowl for properties.

It may be looking at three small networks inherited by NationsBank when it bought Boatmen's Bancshares: Express Banking in Arkansas, Via in Kansas, and BankMate New Mexico.

Mr. Bennion said there have been "discussions along those lines" but would not be more specific.

"We didn't buy BankMate and decide to go into a whole new geographical area with the idea we were going to buy BankMate and just sit there," Mr. Bennion said with a laugh. "We've got to expand more in the Midwest. Will that be through acquisition? Will it be by expanding the business? 'Both' is probably a safe answer."

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