Fiserv Paying $224 Million For Securities Processor BHC

Fiserv Inc., a leading provider of back-office support for banks, planted a flag in the brokerage services field Monday with a $224 million deal for BHC Financial Inc.

The transaction, scheduled to close in the second quarter, would give Fiserv a stake in the expanding and lucrative bank investment products business.

BHC Financial, based in Philadelphia, provides securities clearing services to more than 200 banks, including 14 of the top 50. Among them: Norwest Corp., Minneapolis, and Citicorp, New York. Fiserv's following, by contrast, is primarily community banks with assets of $250 million or less.

BHC's earnings grew at a 29% clip in 1996, versus 13% for Fiserv. The potential for Fiserv to accelerate its earnings growth was clearly a motivation behind the deal.

"There are significant opportunities in this market, and Fiserv wanted to capitalize on them," said George D. Dalton, chairman and chief executive officer of the Brookfield, Wis.-based company.

BHC, meanwhile, has been struggling to maintain market share against two big competitors that enjoy the backing of major securities firms.

Market watchers say finding ways to follow banks into new businesses is a matter of survival for many vendors.

"It's getting more difficult for niche companies to survive alone," said Larry Tabb, a consultant at Tower Group in Newton, Mass. "Consolidation among banks is feeding a trend throughout the organizations that service banks. These companies are finding that they need to be more broadly diversified, too."

Companies like Fiserv and BHC Financial have long controlled service niches. Fiserv's specialty is "core processing"-handling the high volume of routine checking and savings transactions that move through the banking system daily. BHC, meanwhile, specializes in reconciling the buying, selling, and trading of individual securities, mutual funds, annuities, and other securities offerings.

Stiff competition from computer systems manufacturers whose products are becoming more affordable to even smaller banks is also putting pressure on firms like Fiserv to find new directions.

"Small banks can now buy systems and services directly from a vendor for less than what a service company would offer," said Carl A. Faulkner, consultant at MOne in Phoenix. "The service companies have got to get more leverage and drive costs down."

Fiserv, which has grown to rank among the top five largest bank core processors largely by acquiring smaller firms in the same niche, may also be feeling the pressure as that acquisition pool dries up, said market watchers.

"Five years ago, a deal like this would have been very unusual," said M. Arthur Gillis, a Dallas-based consultant. "But there is nothing else to grow by now. (Fiserv) had to look to new markets because all the fruit has been picked."

The combination will also pit Fiserv more squarely against longtime industry rival Bisys Group Inc., a Little Falls, N.J., firm that has carved niches for itself in both the transaction processing and mutual fund accounting worlds. Mr. Dalton declined to comment.

William T. Spane Jr., chairman of BHC Financial, agreed their combination would allow the companies to offer more comprehensive services to large and small bank clients.

"As part of a much larger company, we will be able to use our synergies with each other to deliver additional services," he said.

A broader product line could include more trust and retirement plan services, said Mr. Spane. Fiserv's trust group, which includes First Trust Corp. and Lincoln Trust Co., serves 311,000 individuals and businesses that invest in IRA accounts. The group administers plan assets totaling over $18.2 billion.

In addition to securities clearing, BHC Financial provides brokerage transaction processing, discount brokerage, and insurance services to 175 community banks and other financial institutions.

Analysts praised the deal, the news of which sent BHC Financial's stock soaring $12 Monday, to $32.375 per share. Fiserv shares rose $2.875, to $35.625

"It's a very good fit," said Stephen T. McClellan, an analyst in the San Francisco office of Merrill Lynch & Co. "Fiserv's traditional market base of small to midsize banks is very mature. This will help them broaden out their services, particularly with respect to big banks, and allow them to maintain their 19% to 20% annual growth."

BHC Financial and its principal subsidiary, BHC Securities Inc., will operate autonomously as part of Fiserv's trust group. All 450 employees and the firm's top executives will remain in Philadelphia.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER