When it closes its $408.2 million deal for InterCept Inc., Fidelity National Financial Inc. would become the second-largest core processing outsourcer for banks.
The Jacksonville, Fla., company made two significant announcements Thursday. One involved the deal for InterCept, an Atlanta vendor with 425 core-banking clients. The other: Fidelity National has shelved a plan first described in May to spin off its bank-technology operations into a new company.
It chalked up the second development to unfavorable market conditions for new stock offerings and the need to focus on the InterCept deal.
The deal is a resolution of InterCept's effort over the past year either to take itself private (which it was unable to do) or to divest parts of the company in order to sell itself (which it now seems to have done).
Gary Norcross, the president of Fidelity Integrated Financial Solutions, the bank processing division of Fidelity National, said that purchasing InterCept would boost his firm's revenues and its community-banking, core-processing, and item-processing customer rosters.
Fidelity National is already the nation's largest title insurance company. The deal would double the size of its electronic fund transfer business and give it relationships with the 6,000 customers that use InterCept's CallReporter regulatory reporting system.
Analysts said the deal would put Fidelity National in a strong No. 2 position in the bank technology outsourcing market, behind the longtime leader, Fiserv Inc. That No. 2 position would be particularly noteworthy because Fidelity did not enter the banking technology market until early last year, when it bought Alltel Corp.'s bank processing unit for $1.05 billion.
The InterCept deal would be Fidelity National's seventh acquisition in the market since then. Fiserv and Metavante Corp., a division of Marshall & Ilsley Corp., have also been snapping up technology providers this year.
"This changes the pecking order," said M. Arthur Gillis, the president of Computer Based Solutions Inc., a Dallas research and consulting firm. By his reckoning, InterCept had $259 million of revenue last year, when Fidelity National had $853 million of revenue from bank processing alone. (Fiserv had $2.7 billion.)
Without the InterCept deal, Fidelity National is on track to report about $1.2 billion of revenue from bank technology for this year. That figure would put it about at parity with Metavante, Mr. Gillis said. Tacking on InterCept's revenue would put Fidelity National clearly ahead of Metavante, he said.
Mr. Norcross made a veiled criticism of Fiserv, of Brookfield, Wis., by saying Fidelity National had done a better job than some competitors in integrating the products from multiple acquisitions into a more efficient platform. Fiserv, itself the product of more than 110 acquisitions since 1984, operates many of its units as independent businesses and often with products that have not been combined into an interrelated system.
Leslie M. Muma, the president and chief executive of Fiserv, refuted Mr. Norcross' boasts and said he was not concerned by the growth of his competitor.
"Organization doesn't stop product competition if you have multiple products in the same market," Mr. Muma said in a telephone interview Thursday. "Not every bank in the world wants to buy the same product. We'll see who makes the most money."
Jim Eckenrode, the vice president of consumer banking research at TowerGroup, a Needham, Mass., market research unit of MasterCard International, said Fidelity National has rapidly become a more important player in the bank markets it serves. However, it still has a long way to go before it can challenge Fiserv for leadership, he said.
"They are making a real hard run at it," Mr. Eckenrode said. "They're still not as big as Fiserv, but they're getting there on the item processing side."
The analysts also said there is potential for additional consolidation. "There are still too many vendors in this marketplace doing the same thing," Mr. Gillis said. "It's a waste of productivity to have so many redundant players in the market."
And Mr. Norcross said Fidelity National would continue to seek takeover opportunities. "We have always been an acquisitive company. We always want to take advantage of opportunities."
It is likely to look overseas, where it hopes to expand. It already has a toehold in Europe; in April it acquired Sanchez Computer Associates Inc., a core processing vendor with customers in Eastern Europe. Last month Fidelity National said it would buy the German core processing software firm Kordoba GmbH & Co. KG.
Mr. Norcross also said Fidelity National would continue to look at companies that could expand its product offerings or market share domestically.
It said it would pay $18.90 a share for the 21.6 million shares of InterCept's outstanding common stock. That would be an 8% premium over InterCept's closing price of $17.45 on Wednesday.
Mr. Norcross said he expected the deal to close by mid-December.
In addition to providing core processing for 425 clients, InterCept handles item processing for 720 banks, mainly community and midsize ones. It also operates an electronic funds system that connects to most regional networks.
But last year it attempted to become a private company. When it could not find financial backing, it hired an investment banking firm in order to explore a sale.
One of InterCept's problems was its Internet Billing Co. Ltd. unit, or iBill, which processes credit card payments primarily for pornographic Web sites. The high chargebacks associated with this service led to higher fees from the main credit card associations and made iBill an undesirable part of the parent company. InterCept sold iBill to a unit of Penthouse International Inc. in March.
Mr. Norcross minimized the troubles at InterCept.
"They did like a lot of people did during the dot-com craze - they had made some investments that turned out to be not good investments," he said. "But the business that remained, the business that we are acquiring, remains fundamentally sound."
No decisions have been made regarding the future of InterCept's executive team, Mr. Norcross said, including John W. Collins, its chairman and chief executive, and G. Lynn Boggs, its president and chief operating officer. "We would like to see John and Lynn remain a part of Fidelity," he said.
But because of the deal, as well as a sluggish market for stock offerings, Fidelity National said it would delay the spinoff of its technology holdings as a company that would be known as Fidelity National Information Services Inc.
The spinoff has been delayed at least until the first quarter, and Fidelity National cautioned that it might not happen at all.
Mr. Norcross said the InterCept deal is "a significant event that will affect the financials," so the prospectus would have to be re-filed. Also, "the market has not been favorable for IPOs recently."
