Consolidating its position in the merchant processing business, Nabanco has announced it will acquire Brown-Forman Corp.'s credit card processing business Brown-Forman Enterprises.
The move was similar to those taken recently by other leading processors, with Fort Lauderdale-based Nabanco deciding to take over a relatively small but choice piece of business in a fast-growing sector of the merchant market.
Even for a powerhouse like Nabanco, which ranks first in processing merchant credit card sales, acquisitions remain important to maintaining its position.
According to Don Sharp, senior vice president at Atlanta-based First Financial Management Corp., Nabanco's owner, Brown-Forman's $3 billion portfolio is a "nice piece of business" even for a processor that handles $60 billion of transactions a year.
|High Quality' Acquisition
Brown-Forman's processing niche in high-end restaurants and hotels -- a healthy market in which the bank card associations are stepping up their competition with American Express -- provided the "high quality" that Nabanco sought.
With bank-issued cards like ihe General Motors MasterCard and AT&T Universal Card now gaining ground in travel and entertainment segment, Nabanco is prepared to process the restaurants' new transactions.
Nabanco's growth has had a positive effect on its parent. First Financial Management reported a 13% increase in third-quarter earnings, to $420.9 million.
It said a major source of strength was new business, including Nabanco's processing contracts with Sears, Roebuck and Co. and R.H. Macy & Co.
Just days before Nabanco's Brown-Forman announcement, the merchant services unit of First USA Inc. agreed to acquire MAGroup of Tucson, Ariz., in a $10.5 million stock transaction.
First USA said Magroup, which serves about 6,000 merchants, came at an attractive price and will be able to ascend to a level that it could not have achieved without a bank's support.
Consolidation Trend Seen
According to William J. Westervelt, an expert on the merchant side of the card business who is principal of First Annapolis (Md.) Consulting, this is only the beginning of a consolidation trend.
In addition to acquisitions of smaller processors by larger entities, both banks like First USA and nonbanks like Nabanco, he sees "a lot more acquisitions of ISO-type businesses -- the independent service organizations that act as intermediaries between smaller retailers and the credit card clearing companies.
Smaller merchant processors, he said, will find it increasingly difficult to find banks to sponsor them as regulatory capital guidelines tighten.
In the past, nonbank processors found it relatively easy to gain access to the card clearing systems by paying MasterCard and Visa banks to use their bank identification numbers. The concept is commonly ca "rent a BIN."
Sales, Servicing People
Unlike in some processing acquisitions, where "all you're picking up is the customer base," Mr. Sharp said Nabanco will absorb the sales and servicing people in Brown-Forman's merchant processing unit.
Created more than four years ago, Brown-Forman Enterprises had been able to build a transaction processing business using the same sales force that marketed its wines and liquors. Over time, the unit developed a specialized sales force that sold processing services nationwide.
Louisville-based Brown-Forman produces and markets several well-known consumer products including Jack Daniel's Tennessee Whiskey, Canadian Mist, Southern Comfort, Korbel California Champagnes, Bolla Italian Wines, Lenox China and Crystal, Dansk International Designs, and Gorham Silver, China & Crystal.