Misys Deal Could Boost FIS' Overseas Growth

When your home gets too small, build an addition.

That's the thinking behind Fidelity National Information Services Inc. statement Thursday that it's considering buying U.K. financial software vendor Misys PLC.

Misys was the largest non-U.S. core systems vendor as of last year, according to an October 2010 report from Aite Group LLC. It has more than 525 financial institutions worldwide running one of its core processing systems, which retail banks use to manage their customer account files.

With the domestic market suffering from a lack of demand, FIS executives have stated international growth is a top priority, and buying Misys could give the Jacksonville, Fla., vendor immediate entree into new markets.

"They're looking to grow globally, and they're also looking to increase the average number of products per customer," said Christine Barry, a research director who follows core banking vendors for Aite Group. "Misys would help them expand their product portfolio to achieve that, and it would also give them a whole list of new banks as customers that they can cross-sell."

FIS, one of the largest U.S. financial technology vendors, said Thursday that it had approached Misys about a possible acquisition. "There can be no certainty that an offer will ultimately be made for Misys, nor as to the terms on which any offer might be made," FIS said in a statement.

FIS's announcement was in response to a statement Misys made Tuesday about having been approached by an unnamed party about a potential deal. A Misys spokeswoman declined to comment on Thursday.

If FIS did make an offer for Misys and ultimately prevailed, it would be its second major acquisition of a core banking vendor in as many years. FIS in October 2009 completed its acquisition of Metavante for $4.2 billion, which included the assumption of about $1.7 billion of Metavante's debt.

Last year it also acquired the global technology consulting firm Capital Markets Co. NV for $411 million.

FIS' first-quarter revenue grew 12% from a year earlier to $1.4 billion, which it said was helped by its growing international business.

"Global expansion is one of our key growth initiatives, and we are making good progress in improving our visibility in high-growth international markets that we are currently serving," Frank Martire, the president and chief executive of FIS, said on an earnings conference call in May.

Gary Norcross, the chief operating officer of FIS, added on the call that the company saw "tremendous opportunities" in Asia for its payments and core processing technology, as well as in South America.

U.S. vendors have been pursuing business in other regions partly because the financial crisis halted technology investments by domestic banks. While local spending trends are improving, U.S. banks are still cautious to make major upgrades because of new regulatory costs and internal business issues.

"We're still not yet at pre-financial crisis levels as far as U.S. banks replacing their core systems, so I think the vendors are looking overseas where there has been faster growth," Barry said. "In Europe there has been a slowdown as well but some of the emerging countries have seen an uptick in the number of core system replacements."

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