Computer Services Inc. Buying Heit to Boost Product Portfolio

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Computer Services Inc.'s multi-million dollar cash deal for a managed services provider will expand the core banking vendor's geographic reach and allow it to cross-sell to a wider group of community banks.

CSI, of Paducah, Ky., said Wednesday that it is buying Heit Inc. of Fort Collins, Colo. Heit provides managed services and cloud-based security and compliance products to more than 450 community banks and credit unions.

The deal will boost CSI's profile in managed services, and it will expand its reach to the West coast.

"This is a result of our strategy to broaden and diversify from coast to coast," says Steve Powless, chief executive officer of CSI. "As we look to the future, we see a big growth market in the industry in managed services."

The acquisition is expected to close September 1. CSI is a pink sheet company that trades over the counter. Heit is privately held. CSI is paying cash for all of Heit's private shares, Powless says.

Though Powless would not say how much CSI is paying for Heit, he says this will be the largest acquisition that CSI has ever made.

In the last decade, CSI has acquired five other companies in the telecommunications, remote printing and managed services sectors. In 2003, CSI bought Attus Technologies Inc. of Charlotte, N.C., a compliance services provider. In 2005, it reportedly paid $3.5 million in cash for a 49% stake in telecommunications and Internet services provider Heartland Communications Internet Services Inc. CSI increased its stake to 63% in 2006.

CSI is one of the smaller core banking providers, competing with larger companies such as Jack Henry & Associates Inc., Fiserv Inc. and Harland Financial Solutions Inc., among others. It currently does business with 5,000 financial services companies.

"They may have acquired Heit for its community bank contacts with the hope of cross-selling other capabilities," says Christine Barry, a research director with Aite Group in Boston.

CSI has a presence in less than half of U.S. states, Barry says. In the increased regulatory and compliance environment, small banks in particular are showing a preference for core vendors that have consolidated a wide variety of services and products, she says. Heit, with its outsource-model for security and compliance, fills in CSI's product portfolio.

The larger core platform vendors have also been on an acquisition tear this year. Fiserv Inc., of Brookfield, Wis., acquired CashEdge Inc., a rival in electronic payments, in June for $465 million. Fiserv bought Credit Union Online Inc. and Mobile Commerce Ltd. in March, boosting its outsourced account processing and mobile payments capabilities.

Heit's software as a service model is appealing to smaller banks, says Steve Ledford, a partner at Novantas LLC of New York.

"The move to software as a service is an important enabler of more sophisticated services for community banks," Ledford says.

CSI hopes to maintain its competitiveness in managed services, says Robert Hunt, senior research director at TowerGroup.

Such services are crucial for community banks and credit unions to monitor the efficiency of their technology. Larger competitors already have well-developed managed network products and services, Hunt says.

"They are making CSI more like competitors who have broader offerings," Hunt says.

Heit's small-bank customers have been moving more and more functions to its data centers every year, says Dan Holt, the CEO of Heit.

"Banks have to provide more technology and more products and services and the pace of change is faster than ever, and so is the need to improve expenses and efficiencies" Holt says. "This is what managed services is all about."

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