National Processing Inc. said it has agreed to acquire FA Holdings Inc., an independent sales organization in the merchant processing field.
The $64 million deal is seen as a response to recent erosion in National Processing's share of the merchant-acquiring business. In the past year Wal-Mart Stores and United Airlines shifted their credit card acceptance business to National Processing's larger competitor, First Data Corp., the market leader.
"We will defend every one of our national merchant contracts," said Robert E. Showalter, chief executive of National Processing. "But we need to diversify our stream of revenue."
FA Holdings, which owns Financial Alliance Processing Services Inc., is a good fit because it focuses on smaller merchants.
When the deal is completed, NPC will have gained 56,000 merchant contracts, increasing its total to 80,600.
FA and National Processing, known as NPC, both have their roots in Kentucky banks. Financial Alliance grew out of the card-processing arm of Citizens Fidelity Bank and Trust Co., which was subsequently bought by PNC Bank Corp. NPC, once part of First National Bank of Louisville, was acquired in 1988 by National City Corp. of Cleveland.
Moreover, the two Louisville-based processing companies are not strangers to each other. Since May, National Processing has had an exclusive contract to handle all of FA Holdings' card processing work. FA Holdings signs about 1,400 new processing customers a month.
Paul Martaus, a consultant and president of Martaus & Associates, Clearwater, Fla., said the acquisition may be "too little, too late" for National Processing. Though the acquirer will be gaining management depth, he said, "it is on the verge of losing another major retailer, The Limited."
Tom Wimsett, executive vice president of NPC's merchant services division, said The Limited has not formally notified NPC about plans to leave. He acknowledged that the retailer's 40% equity stake in Alliance Data Systems, another processor, is likely to influence its decision.
Financial Alliance has annual revenue of about $50 million, which NPC expects will increase its own merchant services profitability.
NPC had $374 million in revenue last year but reported a 94% plunge in first-quarter profits, after a restructuring charge. Its net of $7.2 million in the second quarter was off 3%.
Mr. Wimsett said that in a recent meeting with analysts NPC accounted for the anticipated loss of The Limited.
NPC plans to buy 80% of FA Holdings this year and the rest next year, depending on certain performance benchmarks.
