A year ago FIS executives were focused on closing their $2.94 billion acquisition of rival Metavante Technologies Inc., one of the biggest financial technology mergers of the decade. This June, the company announced a much smaller deal to acquire Compliance Coach Inc., a developer of risk assessment software.
The two deals' varied characteristics are more reflective of how sweeping regulatory changes have shaped the banking industry's priorities in the last year than of FIS' acquisition appetite. New limits on the ability to charge overdraft fees, rules against certain credit card practices and an expected cap on debit interchange rates have banks paying closer attention to risk as well as looking for new ways to generate revenue.
The changing regulatory environment has prompted FIS to take on a more consultative role with its clients. Banks rely on FIS to ensure their products and technology are compliant and also to "help them figure out how to replace certain income streams" and "how to go after the next generation of financial services customers," said Gary Norcross, an executive vice president and chief operating officer for FIS.
At the same time, the company continues to work through the integration of the Metavante acquisition, which has greatly expanded its product offerings. Most of the product consolidations stemming from the merger should be completed by the second quarter of 2011, Norcross said, adding that the company's product teams have been careful to make sure they present a consistent message about the systems they plan to support going forward.
Brett Huff, a research analyst who follows FIS for Stephens Inc. in Little Rock, Ark., said FIS has done an efficient job of integrating Metavante into its operations. "They've always been a fairly parsimonious company when it comes to keeping expenses under control," Huff said.
With its existing product sets and capabilities gained with the Metavante acquisition, analysts say FIS has the toolset to help banks address the rash of new regulations they're facing. "They do have a number of sort of specialized products that I think will become more important as the regulatory regime continues to get more complicated for banks," Huff said. Deals like Compliance Coach add to those capabilities, he added.
FIS is also seeing "a strong resurgence" in demand for new core processing systems. There's also growing interest in outsourcing core processing; the majority of this year's core deals have been on an outsourced basis, Norcross said.
The company's position in the large-bank market should help it grow revenue as the economy improves and financial institutions begin to spend money, Huff said. "When you look at big banks, they just in general spend more on IT from a dollar point of view and FIS is very strong in the top U.S. bank" market, Huff said. "I think that helps. It's just a bigger pot of money that folks will spend."
M&A activity will also continue to be part of its growth strategy in the future. "We're always looking for companies that will broaden our overall strategy," Norcross said, adding that "we're going to continue to look both domestically and internationally for those opportunities."