Fidelity

Fidelity National Information Services Inc.'s nearly $3 billion deal to buy Metavante, and vault itself over market-share rival Fiserv, is arguably the most important financial technology deal of the decade. But, truth told, it's something of a miracle that it came together at all.

The talks began in July 2008 when Metavante President and CEO Frank Martire called Lee Kennedy, then Fidelity's president and chief executive officer. The call, as Martire tells it, was merely a chat about trends in the industry. At the time, Metavante had been independent for eight months, after being spun off in November 2007 by the Milwaukee banking company Marshall & Ilsley Corp.

The process may have begun innocently, but the logic of a strategic combination became increasingly compelling. Within weeks executives were meeting to see whether they could pull off a deal. "We all realized this could make a lot of sense for us," Martire said. "What drove us over the edge was the people, the chemistry the people had."

That first call had come in July, not long after Countrywide Financial was rescued by Bank of America Corp. and around the time IndyMac Bank failed. As conversations continued into August, Metavante decided talks were serious enough to hire a financial adviser. By early September, when federal regulators took over Fannie Mae and Freddie Mac, the pair had entered a confidentiality agreement. At the same time, Metavante received a written "indication of interest" from a still-unnamed suitor that proposed to buy Metavante for a combination of cash and stock.

A week or two later, after discussions with the rival bidder, Metavante's board decided Fidelity made the better fit; the two companies entered exclusive negotiations. But in a stroke of cosmic bad luck, the deal adviser Metavante had chosen back in August was Lehman Brothers Inc., which failed spectacularly on Sept. 15. And then things got worse. With the collapse of debt markets and a freeze in credit, merger talks came to a halt — there was no way the pair could finance a deal. The companies called off their exclusive negotiations in November.

But the deal was irresistible. By March, as markets stabilized, Fidelity and Metavante were in serious talks once again.

Lee Kennedy, now Fidelity's vice chairman, envisioned the combination's making his company the world's largest banking technology products and services provider and believed Fidelity would need that kind of scale to face potential newcomers to the market. "There are going to be larger competitors in this space in the not-so-distant future," including Oracle Corp. and IBM, Kennedy told analysts.

The companies announced their deal on April 1 and, after an antitrust review, officially closed it on Oct. 1. Fidelity is now the largest vendor serving the banking industry, with $5.4 billion of combined revenue, ahead of Fiserv Inc., the Brookfield, Wis., vendor that has $4.7 billion in revenue. (Fiserv remains No. 1 in the FinTech 100 ranking based on 2008 calendar year revenue.)

Getting the deal done in this economy may have been the highest hurdle, though. Analysts say the new Fidelity should have it easy when it comes to integrating the two cultures — because of the people chemistry Martire referred to. "From a culture perspective, they're similar. Both are predominantly processors that tend to focus on operational efficiencies," said Vijay Balakrishnan, the president of the Atlanta consulting firm Stratex LLC. "Metavante brings an extremely strong focus on customer service; that's a very powerful combination that will bode well for the combined company," he said.

The integration risk comes in the product decisions the company must make. The deal's centerpiece is the new company's dominance in core deposit-accounting systems, said Robert Hunt, senior research director of retail banking at TowerGroup in Needham, Mass., an independent research group owned by MasterCard Inc. The combined company has more than 2,000 core customers, including 48 of the top 100 banks, but "figuring out how to rationalize the various product lines that exist at both companies will be the biggest challenge," Balakrishnan said.