The president and chief executive of Fiserv Inc., which has long been an active purchaser of banking technology vendors, says he plans to be more selective now that the market has become overheated.
Instead, Jeffery W. Yabuki, who took over Fiserv in November, said in an interview Tuesday that he plans to focus more on developing products and services internally.
He is even considering selling some of the Brookfield, Wis., company’s 77 subsidiaries, though he would not say which ones, for fear that competitors would try to poach his customers.
His comments demonstrated a significant strategic shift for a company that has built itself up through 142 acquisitions since it was founded in 1984.
Mr. Yabuki called the market for banking technology mergers and acquisitions “exorbitant.” Fiserv has had difficulty identifying candidates with both attractive offerings and the right price, he said.
He succeeded Leslie Muma, who co-founded Fiserv and was its president and CEO from 1999 until his retirement last year.
Though Fiserv has always had to compete with other banking technology vendors when courting acquisition targets, increased pressure in recent years from financial investors, especially private equity groups and hedge funds, has driven up prices, Mr. Yabuki said.
“It’s very difficult to combat private money,” he said. “Strategic buyers have no advantage any more that I can see.”
Though Fiserv has no plans to shut down its well-oiled M&A machine — last week it purchased the property and casualty insurance processing software vendor InsureWorx Inc. — “we’re going to look at acquisition a little bit differently,” Mr. Yabuki said. The goal is now “to drive high growth, not just earnings accretion.”
He reiterated his company’s full-year earnings guidance of $2.48 to $2.54 a share and said Fiserv could generate organic revenue growth of 6% to 9%, versus its current range of 5% to 9%. He offered similar outlooks for operating margins and earnings growth.
As part of a strategic review announced in April, Fiserv ranked each of its businesses according to its attractiveness for the future, he said. “They are all businesses we’d be happy to continue to operate.” However, “there are some businesses that are on the cusp.”
As a result, Fiserv would consider selling units that it does not consider strategic for the future, Mr. Yabuki said, especially if a deal came with the high price that he has seen in recent deals when private equity companies start bidding. “If somebody came along and offered me private equity multiples, I’d sell.”
During an presentation to investors Tuesday, Mr. Yabuki outlined his plans to increase Fiserv’s annual revenue by $360 million by 2012, mainly from cross-selling, and to reduce expenses by $125 million by 2011, mainly by streamlining internal operations.
One important goal is to offer clients a broader swath of payment services, he said. For example, BillMatrix Corp., a last-minute payment service provider that Fiserv acquired last month, would serve as the foundation of a broader bill-payment business.
Fiserv’s health-care processing division has gained a foothold in the nascent market for health savings accounts, Mr. Yabuki said. The company had looked at exiting the health business, but in April it announced that it had won a contract to provide processing services to Blue Healthcare Bank, a start-up industrial bank being organized by the Blue Cross Blue Shield Association and 32 of its 38 state and regional Blue Cross health plans to hold consumers’ HSA deposits.
“Health payments are a huge opportunity for us,” he said.
On the cost-cutting side, Mr. Yabuki said Fiserv should lower annual costs by $100 million by 2010 and $125 million in 2011 by consolidating some of its back-office operations such as accounts payable, using common data centers for multiple operating units, developing unified purchasing and travel management systems, and potentially outsourcing some functions.
Last year Fiserv had $4.1 billion of sales, but because of its decentralized business model, with many independent operating units, “we often operate as a $50 million business 80 different times,” he said.
And each of those units has its own overhead. For example, Fiserv operates 65 different e-mail systems, each with its own infrastructure and software.
Executives emphasized in the presentation that they wanted to avoid things that would harm Fiserv’s customer banks.
“We don’t envision sunsetting any of our products,” Norman J. Balthasar, a senior executive vice president and the chief operating officer, said during a question-and-answer session with analysts.
Mr. Yabuki told the analysts, “When you use a word like sunset, it’s almost an inflammatory term.” However, he also said that sunsetting could happen eventually. For example, Fiserv offers 10 systems for Internet banking, and it might need only three, he said.
Jeanne Capachin, the research director of corporate banking at Financial Insights Inc., a research unit of the Boston technology publisher International Data Group Inc., said that even modest efforts to centralize Fiserv could be difficult.
Consolidating the back-office functions should not be that difficult, but “culturally, Jeff is going to have a big job on his hands,” she said. “It’s going to be hard, given the autonomy these guys have had all this time.”
Even training the sales force for cross-selling more products could be difficult, Ms. Capachin said.
“If I’m selling” Information Technology Inc.’s core system and ancillary products, “I know that product well,” but with the full array of Fiserv’s 350 products, “it’s going to be hard to know what to take to the customers and what to sell,” she said. “2007 is going to be the year of transition for the salespeople as they sort out who makes it and who doesn’t.”
Paul Bartoli, an analyst at Credit Suisse Group, who has a “neutral” rating on Fiserv’s stock, expressed skepticism about whether the company could achieve its growth goals.
“We did not come away with a concrete sense of how management intends to achieve these goals,” he wrote in a note issued Wednesday.
