Fidelity National Information Services Inc., which has been largely absent from the acquisition scene for a year, is showing interest in going shopping again.
The Jacksonville, Fla., company has amassed a war chest of about $200 million, and the pending sale of a company in which it owns a stake could add $300 million. It said during its first-quarter earnings call Thursday that it is considering several deals, especially in core banking and bill payment.
Though Fidelity is already a major provider of core banking software, many observers say the U.S. banking industry is poised for a wave of upgrades. And the bill-pay market is undergoing a transformation away from a stand-alone model to one in which the service is integrated into a broader package of payment services.
Though some of Fidelity's acquisition budget had previously been earmarked for repurchasing its own shares, William P. Foley 2nd, the company's chairman, said during a conference call with analysts, "We are also looking at several acquisition situations and want to make sure we have the flexibility to respond."
"We need more core processing, and … in bill pay, we're not where we need to be," Mr. Foley said, but he named no specific company that he is considering.
Christine Barry, a research director at Aite Group LLC in Boston, said Fidelity probably wants to expand its core processing business in anticipation of increased demand. "There is definitely a high level of need for banks to replace their systems," she said. "Banks aren't moving as fast as many people expected, but it's inevitable."
She also said the company may be interested in buying abroad. "There are so many overseas vendors that have great core processing systems that have not been able to enter the U.S. marketplace."
Bart Narter, a senior analyst at the Celent LLC research firm in Boston, said that Fidelity might be interested in buying Computer Sciences Corp.'s Hogan core processing business, which serves mainly large banks. Fidelity announced a deal in 2005 to develop a hosted version of Hogan aimed at smaller banks, "so it already has some familiarity with that business," he said.
Fidelity is "probably interested in growing the large-bank business," Mr. Narter said, and picking up the rest of the Hogan operation would be an easy way to expand its share with a familiar product line.
CSC was reported to be in buyout talks in November 2005 with a group of private equity companies, though the El Segundo, Calif., company never confirmed this, or reports that the deal had fallen through. There was speculation at the time, however, that CSC would be willing to entertain offers for its banking technology unit, including the Hogan product line. CSC executives did not return calls Thursday.
Mr. Narter also named Trisyn Group, an Irving, Tex., banking technology vendor, as a potential buyout target, based on a customer list that includes BB&T Corp. and Zions Bancorp. A Trisyn spokeswomen declined to comment Thursday.
Because Fidelity is already a big core-processing software provider, Mr. Narter said that any deal in this business line now would probably be aimed at expanding its customer base rather than at improving its techology.
Fidelity is known for its active M&A strategy but has been fairly quiet since its February 2006 merger with the St. Petersburg, Fla., transaction processor Certegy Inc. "They've been digesting, and there's plenty to digest," Mr. Narter said.
(In November, it was spun off from Fidelity National Financial Inc., and it has made three small purchases since then.)
Some moves by competitors in the U.S. core banking market this year could concern Fidelity. In January, i-flex solutions ltd., the Mumbai vendor that is majority-owned by Oracle Corp., announced its first U.S. core banking client, People's Bank of Bridgeport, Conn. And last month Metavante Corp. announced a deal to market in this country core banking software from the Swiss vendor Temenos Group.
The bill payment space has also been active. CheckFree Corp., the market leader, bought a payments software company in January and is expected to close a second deal in June; it has said it is trying to remake itself as a more diverse provider of payments software.
Besides the money Fidelity has available now, additional funds are expected to come from a deal that was announced Wednesday. Computer Sciences said it would buy Covansys Corp., an outsourcer, for $34 a share. Fidelity owns 29% of Covansys, and Mr. Foley said this stake should net after-tax proceeds of about $318 million, to be used for acquisitions, share repurchases, or to pay down debt.
Mr. Foley said Fidelity expects to repurchase shares this year.
Its first-quarter net profit rose 51%, to $59.5 million, from the year earlier. Revenue was up 25%, to $1.1 billion.
Its shares closed at $50.79 Thursday, up 4.57%.
