Deepening its imprint on the merchant processing market, Nova Information Systems Inc. is forming a joint venture with a subsidiary of Milwaukee-based Firstar Corp.
Nova announced the agreement last week with Firstar Bank USA. The venture, Elan Merchant Services, will increase Atlanta-based Nova's heft as it tries to compete against industry leader First Data Corp.
Firstar has processed merchant credit card transactions for a network of 850 correspondent banks using the Elan Financial Services brand name for 15 years. It has served mostly small and midsize retailers in Wisconsin, Illinois, and Minnesota.
The Firstar portfolio, with 32,000 merchants and $3 billion of annual transactions, would give Nova "another deal it can point to to show it is a viable alternative to First Data on merchant alliances," said Richard K. Weingarten, director of Salomon Brothers Inc., New York. He was referring to the joint ventures First Data has formed to serve major banks' merchant accounts.
"The question is: How smooth will the conversion and execution be to Nova's platform?" Mr. Weingarten added.
Under the deal, expected to close by yearend, Nova would hold a 51% stake in the new company. It would also move from ninth to fifth in the ranking of merchant processors, said David Robertson, president of The Nilson Report, an industry newsletter based in Oxnard, Calif.
The Firstar portfolio is 19th-largest.
Nova is in the midst of a steady stream of acquisitions. In April it announced it would acquire Crestar Bank's $1.8 billion portfolio, with 7,500 merchants. That was the first significant purchase Nova had made since 1995, when First Union took an equity stake in Nova and handed the processor control of its $4.6 billion merchant portfolio.
Including the Firstar customers, Nova would have 135,000 merchants.
Mr. Weingarten estimated Nova would pay $20 million to $30 million for its stake in Elan Merchant Services. He said the venture would have $60 million of annual revenue.
Edward Grzedzinski, Nova's chief executive officer, said the acquisition "brings us more volume to process and a lot of distribution in a part of the country where we were very thin."
He described Firstar as a "quality book of business" and said it has "an extensive branch network and a network of correspondent banks."
Patricia A. Wesner, senior vice president of Firstar Corp., said the banking company had been reviewing strategic alternatives for the past year to see whether it could stay in the merchant processing business.
Ms. Wesner said Firstar thought the business had "a bright future" but decided the best and quickest way to provide the necessary technology was to align "with someone else rather than go it alone."
"We did not want to sell the business or get out of it," she said. Firstar wants "to stay in the correspondent business and grow it," but it had to "improve the technology and processing structure."
Franco Turrinelli, research analyst at William Blair & Co., Chicago, said the deal is a coup for Nova. "Firstar had a large number of options and alternatives," he said. "That Nova won speaks volumes to their technology solution and product offerings, and it is a tremendous endorsement of their approach."
