Open Solutions Inc. remains committed to buying Bisys Group Inc.’s bank-processing business despite announcing a second delay this week in completing the deal.
Louis Hernandez, Open Solutions’ chairman and chief executive, said Tuesday on an earnings conference call with analysts that his desire to seal the deal is “as strong or stronger than” the day it was announced, Sept 15.
The Glastonbury, Conn., company agreed to pay $470 million in cash for the New York outfit’s Information Services Group, which provides outsourced core processing for about 220 banks. Bisys sells financial outsourcing services to banks and other companies.
Open Solutions would double its revenue with the acquisition and be the No. 5 provider of core processing to banks and credit unions.
The deal was supposed to close by the end of 2005. But Bisys, which is in the middle of restating financial results, announced in mid-December that Feb. 28 was the new “drop-dead” date. The second extension, to March 8, was announced Monday by both companies.
Bisys has not reported financial results since its fourth-quarter and full-year report for 2004. It said last July that it would restate earnings for three years to correct its booking of revenue from mutual fund fees. Its mutual funds processing unit is its largest business line.
Bisys said Monday that it had completed its audit of the unit, which was needed for Open Solutions to arrange financing for the deal.
John Kraft, an analyst at D.A. Davidson & Co., said Bisys’ inability to provide audited books during the restatement is the sole reason for the delays in wrapping up the Open Solutions deal.
“I don’t think there are real issues with anything else,” said Mr. Kraft, who does not follow Bisys and rates Open Solutions a “buy.” “I don’t expect there are any skeletons in that issue that are causing problems.”
Mr. Hernandez said on the Tuesday call that he expected the deal to close soon. “We’re pretty confident about where things stand right now.”
Open Solutions reported Tuesday that its fourth-quarter earnings before interest, taxes, depreciation, and amortization grew by 91%, to $15.5 million. Earnings of 34 cents a share topped analysts’ average estimate of 31 cents.
Revenue grew 65% in the three months, to $59.7 million, topping the average revenue estimate of $53.8 million. Net income fell 46%, to $7.9 million, mostly because of a one-time tax benefit in the year-earlier quarter.
For the year Open Solutions reported that earnings before interest, taxes, depreciation, and amortization grew 83%, to $41.3 million, and revenue grew 81%, to $193.8 million.
The company did not provide guidance for the first quarter or for 2006. Executives said they would hold another conference call to provide those details after the Bisys deal closes.
Open Solutions said the number of new contracts signed in the fourth quarter grew nearly threefold. Those contracts were worth $97.8 million, and included 26 for core processing software, up from 16 in the third quarter and 18 in the fourth quarter of 2004.
Kenneth J. Saunders, an Open Solutions executive vice president and its chief financial officer, said such sales are highly seasonal. “You always start low in the first quarter and end high in the fourth quarter,” he said. “Q4 is always a significant uptick.”
Open Solutions said $38.5 million of the fourth-quarter contracts resulted from a reseller agreement with Celero Solutions, a joint venture among five Canadian prairie cooperative organizations that serves more than 150 credit unions in Canada.
In December, Open Solutions and Celero finalized a 10-year licensing rights, reseller, and maintenance agreement; in the fourth quarter Open Solutions began selling a Canadian version of its relational core data processing system for credit unions.
Peter J. Barry, an analyst at Bear Stearns, said Wednesday in a note to investors that it is risky for Open Solutions to expand outside the United States when it is about to begin integrating the Bisys business. “Indeed, some investors will likely continue to find daunting the number of moving parts in the OSI growth equation,” he wrote. Mr. Barry rates Open Solutions “outperform.”
Mr. Kraft said Open Solutions had “a monster quarter, monster earnings, monster everything.” Acquiring Bisys’ outsourcing business would slow its growth but add the stability of more recurring revenue, he said. “That’s worth a lot to investors.”
By Wednesday afternoon, Open Solutions’ shares were trading at $29.60, up 9.02%
