The Belgian consultancy Capital Markets Co. NV said the benefits of its deal to be acquired by Fidelity National Information Services Inc. would far outweigh any business it might lose in being owned by a vendor.
By merging with FIS, Capco said, it could expand its audience by offering a fuller set of services, even though it projected that it would lose $6 million to $10 million a year — about 3% to 4% of its annual revenue — by driving away clients that would not like its new ownership.
"Are we more likely to be picked by organizations, though, for an end to end [job], from product all the way to services? I think we are," Tom McKelvey, Capco's global chief operating officer, said in an interview Tuesday, a day after the deal was announced.
The potential for lost revenue equates to "one project. That's half of one project on the back-end piece," McKelvey said.
But he said he expects most clients to view the combined company as a much stronger partner than either was alone.
"Clients, more and more, are looking for their service providers to not come in and do a $250,000 [or] $500,000 study anymore," McKelvey said. "If you want to be involved in truly transforming the organization, you need to come out there in a different way."
McKelvey said the combined company would be in the same league as Accenture and International Business Machines Corp., both of which have significant consulting arms.
With FIS "being very focused on financial services [and] us being exclusively focused on financial services … that was a match that was undeniable, once we started to talk," McKelvey said. "The synergy case justifies us doing this."
FIS, of Jacksonville, Fla., said it agreed to pay $292 million in cash for Capco, with an additional amount based on its future performance.
It expects Capco to report 2010 revenue of about $225 million. FIS said Capco's majority shareholder is Symphony Technology Group, a Palo Alto, Calif., private-equity firm, would not have any equity or interest in Capco. The acquisition is expected to be completed by the end of the year.
A spokeswoman for FIS said its executives would not comment on the acquisition until its earnings call with analysts next week.
Nancy Atkinson, a senior analyst at Aite Group, said it is hard to tell how the change in ownership will affect Capco.
"They are definitely going to miss out on some business," she said. "Will it be offset by the new business FIS will bring in to them? I don't have a strong view on that, one way or the other."
Capco will probably have an easier time pitching its services to the many financial institutions that already work with FIS, Atkinson said. In that way, its new ownership could be "very helpful," she said.
Those clients might actually feel more comfortable doing business with Capco, Atkinson said, because they are in "closer contact with the people at FIS, to be able to bring them in to work on the kind of implementation — core systems and payments — which are the absolute most important things that banks tend to do."
Some clients, however, may not be comfortable with the pairing, Atkinson said. Clients of Fiserv Inc. may resist working with Capco, for example.
This sort of acquisition is atypical for FIS, Atkinson said.
"I think what is happening in the industry is there is a lot of consolidation," she said. "It is a bit unusual to go this route, though."
Acquiring the Belgian company would help FIS reach new businesses worldwide.
"What they are trying to do is leverage the professional services arm of their business to get them into larger financial institutions, get them more international recognition," Atkinson said. "And the opportunity to bid on international bank projects, and the opportunity to reach to businesspeople rather than just IT folks."
