Jack Henry's Jack Prim is in an unusual spot as an American CEO in 2009 - he's dealing from a position of relative financial strength, which should allow his firm to do a lot of vendor shopping to acquire broader set of solutions.
"We've said for quite a while, the best use of our cash is to do acquisitions," says Prim, pointing especially to niche vendors of specialized banking products and services. Jack Henry recently reported a 3 percent decline in gross profits in FY 2009, but that was still good enough for nearly $300 million "We're solidly profitable and will remain so, even if the economy remains as bad in the next 12 months as it has been in the last 12 months," Prim says.
Some of that financial flexibility will be used to buy Goldleaf Financial Solutions, whose addition will give Jack Henry access to new lines of business, such as LendingNetwork, which offers receivables financing for business-to- business suppliers and other financing functions not normally associated with a technology vendor. Jack Henry agreed to pay $0.98 per share, or a 40 percent premium, to acquire Goldleaf.
Nancy Atkinson, a senior analyst at Aite, says Jack Henry has broadened its approach in recent years, and Goldleaf could extend that strategy. Jack Henry formed a new division, ProfitStars, in 2006 to serve as an umbrella brand for a dozen disparate technologies, with a goal of expanding its sales to large U.S. banks, foreign financial companies, and even companies in industries outside banking.
Analysts said the addition of Goldleaf's technology and customer base should be good for Jack Henry as it competes for core processing business against larger rivals, Fidelity and Fiserv.
"Especially in the community bank market, there is no small willingness for them to put all their eggs in one basket, especially if the vendor does a good job," says Bob Meara, a senior analyst at Celent. "I think small banks take comfort in the safety and soundness of the large publicly traded companies." Meara adds these banks may be uncomfortable dealing with vendors that may not be as well capitalized.