Nova Barely Pausing for Breather on Shopping Spree

Nova Corp., which started the year as the nation's 11th-largest merchant credit card processing company, has been working its way toward the top.

A string of acquisitions this year has vaulted Atlanta-based processor to the No. 4 position, where it trails industry leaders First Data Corp., National Processing Inc., and Bank One Corp.'s Paymentech Inc.

Nova's latest deal, announced this week, was for a $3 billion merchant processing portfolio of the former CoreStates Financial Corp., which was bought by First Union in April.

The sale, expected to close in November, was a logical choice since First Union owns 20% of Nova and refers all its merchant business there.

The consolidation move is a small step for First Union but a significant one for Nova, which has been squarely focused on empire building.

This year Nova stands to triple its credit card processing volume. Once the First Union deal closes, Nova would process $48 billion worth of merchant accounts, up from $16 billion at yearend 1997.

The most recent deal is "a continuation of the really fruitful relationship we have with First Union," said James M. Bahin, chief financial officer of Nova. It also boosts "our geographic penetration in the Northeast in a really significant way."

Nova would gain relationships with the 450 former CoreStates branches the merchants in the portfolio did business with. Those branches would boost the processor's ability to generate sales internally.

That development pleases analysts like Franco Turrinelli of William Blair & Co. of Chicago, who said, "The bottom line is that Nova is focused on this business in a way the banks have not."

Nova's business has been growing in various ways. The volume generated by sales forces is up 24% over last year, according to Brent Wouters, an analyst for Robinson-Humphrey Co. of Atlanta.

But acquisitions have provided the bulk of growth. In September, Nova bought PMT Services Inc. of Nashville. The $1.3 billion deal leapfrogged Nova to fourth place among processors in terms of annual sales volume.

In January, Nova added $5.1 billion of volume by forming an alliance with KeyCorp of Cleveland.

The arrangement is similar to First Data's alliances with big banks, where the processor offers its partners a cut of the revenues.

A key to all the deals, observers said, is Nova's ability to convert all the purchased accounts to its main platform in Atlanta.

Moving accounts to Nova's platform is a sizable investment, analysts said. Indeed, Nova's conversion costs for the first six months of 1998 were $6.6 million, up from $990,000 a year earlier.

Since Nova, long regarded as a technology leader among processors, is converting accounts ahead of expectations, "you have hidden earnings and cash flow that are not apparent in '99 projections," Mr. Wouters said.

Mr. Bahin said his company will make more deals like the First Union one.

"It's another example of transactions that we hope to do and will continue to do for the next few years," Mr. Bahin said. "It's a typical bank portfolio and marketing arrangement that has been so successful for Nova."

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