Advent International, a Boston private-equity firm founded in 1984, has shifted from its initial plan of investing in troubled banks to a focus on banks' back-office technology, specifically transaction processing businesses.

The financial sponsor firm's interest in payment processing businesses is tied to expectations that the electronic transaction industry will benefit from a pickup in consumer and corporate spending. Industry participants say the volume of transactions processed over the last two years declined as the economic downturn and job losses undercut discretionary spending.

"We think there are opportunities inside banks where private equity can provide a way for these institutions to accelerate growth in their [processing] businesses," said Chris Pike, a managing director at Advent International. He said Advent shifted its focus because "the government wasn't ready to welcome private equity into the ownership structure of depositories."

Advent, which manages $26 billion, wants to acquire stakes in payment processing companies valued at $300 million to $5 billion. The fund management firm plans to buy transaction processing businesses and hopes to bundle them into one large company. Ideally, this newly created company would be sold off to another PE fund or strategic buyer.

Advent started eyeing payment processing units affiliated with banks about two years ago, after it reviewed several opportunities to invest directly in banks.

As the number of bank casualties mounted during the second and third quarters of 2008, Advent considered investing in thrifts that have assets of about $5 billion, Pike said.

Advent traditionally had avoided the banking industry; the fund had invested in financial services companies such as online stock brokerages, insurers and specialty finance companies.

"Historically, banks haven't grown fast enough to generate the kind of returns that our equity investors want," said Pike, adding that regulatory constraints discouraged Advent from buying banks.

Recently, Advent teamed up with Bain Capital to make a bid for Royal Bank of Scotland Group PLC's global merchant services unit, which processes roughly 5 billion credit and debit card transactions a year, according to sources.

RBS announced in December that it intended to sell the business, which may command a price up to $3.8 billion (2.5 billion pounds), according to people familiar with the process. Others that have submitted first-round bids include CVC Capital Partners and TPG, a source said.

Officials from Advent, Bain and TPG declined to comment on the RBS auction. CVC representatives did not return calls by press time.

Advent's focus on payment processing can be traced to 2008, when Pam Patsley, an operating partner at the fund, found out about the transaction processing unit of Fifth Third Bancorp. of Cincinnati. The unit was not for sale, but Advent made an offer for it and eventually purchased the business from Fifth Third.

Patsley, a former international division head of the transaction processor First Data Corp., recalled that "Fifth Third did a great job of growing that business within the bank, but it was always small with respect to the size of the bank." Pike noted that Fifth Third's transaction processing business accounted for about 15% of its revenue.

"We approached them and said, 'We'd be interested in investing if you have a desire to accelerate its growth,' " he said.

In March 2009, Advent struck a joint-venture arrangement to acquire 51% of Fifth Third's payment division for $561 million.

"Advent made a well-timed purchase in the Fifth Third business, both from a valuation perspective and positioning themselves for future acquisition opportunities," said Bob Hyer, managing director and head of the financial technology group at Houlihan Lokey.

Hyer advised on two of the industry's largest private-equity deals involving stand-alone payment processing companies when he worked at Greenhill & Co. before joining Houlihan Lokey in March. He advised the New York buyout firm Kohlberg Kravis Roberts on its $27 billion acquisition of First Data in September 2007 and Ceridian Corp. on its $5.2 billion sale to the Boston private-equity firm Thomas H. Lee Partners in November 2007.

Payment processing companies are attractive to firms like Advent for a number of reasons, Hyer said. "Given the nature of their predictable, recurring revenues and high cash flow, these are relatively easy businesses to lend against," he said.

Industry participants say banks that are seeking to bolster their balance sheets through divestitures and private owners seeking to exit businesses through private-equity sales will help fuel deal flow for Advent.

"You're going to see folks who survived the economic storm say, 'I don't want to go through that again.' They're going to be pretty good acquisition targets and receptive" to deals, said Thomas Goldsmith, a spokesman for the Electronic Transactions Association.

Meanwhile, private-equity firms like Advent may have a chance at another transaction processing business.

Bankers say Perella Weinberg Partners is in the process of selling iPayment Inc. of Nashville.

Officials from Perella Weinberg did not return calls for comment.

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