Rash of Vendor Weddings May Stall Bank IT Purchases

Wedding bells are ringing again for technology vendors, but many bank executives in the midst of buying decisions may wait to uncork the champagne.

In the long term, the union of competing vendors should allow many banks to cut costs by helping them negotiate better prices and eliminate resources needed to manage multiple relationships.

But for now, financial institutions may hold off on product upgrades and more ambitious "rip-and-replace" projects for fear of a vendor phasing out their chosen platforms post-merger, analysts say.

"These are pretty big decisions for banks," says Gil Luria, a senior vice president who follows payments technology vendors for Wedbush Securities in Los Angeles. "They are pretty complicated products. You'd rather wait a few months for that to settle than … make a decision that you would have to change later on."

Such is likely to be a concern for clients of S1 Corp., a Norcross, Ga., company that sells cash management, payments processing, online banking and other software to banks.

Competitor ACI Worldwide Inc. on Tuesday announced a bid to buy S1 for $9.50 a share, or $540 million, potentially derailing S1's plans to merge its operations with the vendor Fundtech Ltd.

ACI executives on Tuesday said that combining with S1 would allow the companies to expand their global presence and generate as much as $100 million in new revenue from hosted technology services.

"With S1, ACI would be a larger, more diversified company that is strongly positioned across a wide range of sectors and supported by a broad base of revenues and earnings," Philip Heasley, the president and chief executive of ACI, said in a conference call with analysts on Tuesday. He added that the deal could close in the fourth quarter.

S1 did not return messages on Tuesday. Fundtech said in a statement that its merger agreement with S1 remains in effect but it did not plan to comment further on ACI's proposed offer.

Vendor consolidation can be a major boon to banks, which are looking to reduce the amount of resources they devote to dealing with multiple providers. Technology companies often provide discounts to clients that use more of their products. There can potentially be technical benefits, too, as vendors often try to integrate new software they acquire with existing platforms, making it easier for disparate systems to work together.

"In one way, for banks, it's a winning situation," says Christine Barry, a research director with Aite Group in Boston. "For them it's vendors that already have strong capabilities that are joining forces and broadening their product portfolio."

The competing S1 deals are the latest in a flurry of recent vendor M&A activity that began in the pre-financial crisis days, when many large vendors gobbled up competitors to cross-sell more products to banks.

Fidelity National Information Services, a Jacksonville, Fla., provider of core systems, online banking, payment processing and other software, said last month that it may bid on the U.K. core vendor Misys. Fiserv, a Brookfield, Wis., core vendor, last month said it is buying the smaller payments software company CashEdge of New York for $465 million. NCR, a Duluth, Ga., ATM provider, said this month it is buying Radiant Systems in Alpharetta, Ga., for $1.2 billion.

"I think we are picking up where we left off in 2007," Luria says. "I think now everybody's markets have stabilized. Banks have stabilized. Their purchasing has stabilized. I think the vendors are in a position where their stock is back up, they can look at combining in order to get scale. The vendors want to get scale and then their bank customers want to deal with less vendors so those two things are converging."