Open Solutions Inc., which makes core processing and other banking software, says it will use some of the $88 million it raised in last month's initial public offering to buy companies with complementary technologies.
"Acquisitions will be a big part of our strategy," said Louis Hernandez Jr., the Glastonbury, Conn., company's chairman and chief executive officer.
In an interview last week, Mr. Hernandez said he does not have any particular targets in mind, but he did say that Open Solutions might expand into markets adjacent to banking, such as brokerage, insurance, and payroll services.
Christine Barry, the wholesale banking analyst at the Boston research and advisory firm Celent Communications LCC, said Open Solutions' systems are installed in 245 banks and credit unions, which puts it third among vendors of core processing, behind Fiserv Inc. and Jack Henry & Associates Inc.
Last week Open Solutions announced that it had split its sales force by industry. One group will focus on banks, while the other will focus on credit unions.
"We package our software in different ways to service different markets. It's all coming off the same database," Mr. Hernandez said. Among other things, the separate teams should enable the company to receive better feedback from customers about their business needs.
That decision followed another market-splitting initiative in October, when Open Solutions struck a deal with the New York financial outsourcer Bisys Group Inc. Under the five-year agreement, Bisys gets the exclusive right to host Open Solutions' core banking system for new U.S. clients, while Open Solutions will handle all sales of licenses for software to be installed on banks' own computers. Open Solutions retained all rights to the credit union segment, and all ancillary products and services.
Bisys has used Open Solutions' software for its core processing outsourcing services since 1997. The October agreement "is superior to what we could do on our own," Mr. Hernandez said. "We actually make more money per deal if we sell through Bisys than we would make if we sold it ourselves."
Open Solutions had tried unsuccessfully to go public three times since 1998. Even last month's IPO was held up for several days when employees of Bear Stearns Cos., the lead underwriter, "circulated unauthorized materials to some potential institutional investors," potentially violating federal securities laws, as Open Solutions disclosed in a regulatory filing when the delay was announced.
The delay seemed not to hurt the stock. It priced on Nov. 26 at $17 a share, above the expected range of $14 to $16, and traded briefly above $19.75 the following week.
Open Solutions said it plans to use the proceeds for general corporate purposes, including acquisitions, after it pays down debt of $4.8 million.
The company became profitable this year after posting at least five years of losses, according to the prospectus. For the first nine months of the year it posted a profit of $1.7 million, compared with a loss of $3.5 million for the same period last year. Revenue for the first three quarters climbed 39%, to $43.4 million.
Ms. Barry said that a logical area for Open Solutions to make an acquisition would be cash management software. These vendors, which are struggling with slow sales, are prime candidates for takeovers, she said.
"We're already seeing some activity" in the cash management software market, including the Nov. 25 deal by the online banking outsourcer Digital Insight Corp. for the software vendor Magnet Communications Inc., she said.
