Marshall & Ilsley Corp.'s decision last week to spin off its 36-year-old M&I Data Services Inc. processing unit had been expected for years.
Finally, the stark contrast between banks' and tech companies' stock prices became too much for management to bear. They realized that as a technology unit of a banking company, the data services firm, now known as Metavante, was at a disadvantage in trying to attract talent and make acquisitions.
"We wanted to give the team the opportunity to grow more rapidly, and we felt it was necessary for them to have their own stock to achieve the growth that we are projecting," said James B. Wigdale, the chairman and chief executive officer of the Milwaukee banking company.
Marshall & Ilsley's stock trades at roughly 13 times projected 2000 earnings of $3.41 a share. That is slightly higher than the average banking multiple but nowhere near that of data processing companies. For example, Fiserv Inc., a close competitor to Metavante, trades at 35 times projected earnings.
"We felt the unit would not have the opportunity to make the acquisitions it needs in order to stay on the leading edge in the processing and e-commerce area," Mr. Wigdale said.
The 15% to 20% portion of M&I Data that is to be sold to the public this fall is expected to fetch as much as $200 million. Marshall & Ilsley would own the remaining shares.
M. Arthur Gillis, a bank outsourcing consultant who is president of Computer Based Solutions Inc., Dallas, said he has long urged Marshall & Ilsley to let go of its "prodigal son."
"I said it would happen three years ago, so as usual, banks are slow to do good things," Mr. Gillis said, "and this is a good thing. Every shareholder needed it, and they weren't going to get it from banking. Technology is the money-maker today, not banking."
Lawrence A. Willis, a managing director at First Manhattan Consulting Group in New York, said he, too, had expected a spinoff for years. He said Metavante's business has gotten stronger as it has developed online banking capabilities to add to its service bureau business.
"It has been significantly undervalued, being buried within a banking corporation," Mr. Willis said. "It has not gotten the multiples of a processor type of an organization, much less an Internet-oriented company."
Metavante contributes roughly 33% of M&I's revenues and has had 20% growth, compounded annually, for the last four years. Its revenues were $546 million in 1999. Meanwhile the bank's revenue growth year over year has slowed to the low single digits.
"I think it is the right decision in order to maximize shareholder value," Mr. Willis said.
Despite a lag in IPOs since the April meltdown of the technology stocks, the time is right to take the company public, said Carla Cooper, an analyst at Robert W. Baird & Co., Milwaukee.
"The door has closed on a lot of companies," she said, but Metavante should have no problem. "This is not a newly founded dot-com with no foreseeable profitability," she said.
"Investors are focused on earnings-related companies. A company that has a long and stellar track record like M&I, a solid, profitable, and growing company, can still go public," she said.
According to Metavante's prospectus, its software and services were used to originate or process more than 6.4 billion transactions for roughly 90 million consumer and business customer bank accounts in 1999.
Metavante has about 3,300 customers, mostly banks, thrifts and credit unions. Mr. Gillis said Metavante's distinguishing attribute is that much of its growth has been internal rather than through acquisition.
In addition to providing core data processing services to banks, Metavante is the nation's second-largest provider of consumer bill-payment processing, thanks to one of its rare acquisitions - its January 1999 purchase of the electronic bill payment provider Moneyline Express from Travelers Express. The leader in bill payment processing is CheckFree Corp. of Atlanta.
Metavante is developing a bill payment and bill presentment service, e-Pathway EPP, for banks and corporations. It is expected to become available this quarter.
