The Omaha payment software company Transaction Systems Architects Inc. plans to buy Electronic Payment Systems AG, a Frankfurt transaction processing software provider.
Transaction Systems already has significant operations in foreign countries, but not in Germany.
The $35.9 million cash-and-stock deal, announced Thursday, would “give us instant strength in the German market,” said Judy Hartlieb, the vice president for corporate marketing at the company’s ACI Worldwide.
EPS’ software for processing automated teller machine and payment card transactions, including chargebacks and exception items, would complement Transaction Systems’ product lines, Ms. Hartlieb said. “They have some good products, and they can easily be integrated into TSA.”
In 2004 Germany had the world’s third-highest electronic transaction volume (17.3 billion payments, or about 8.2% of the global total), according to a study released last week by ACI. The country trailed only the United States (66 billion payments, or 31.5% of the global total) and the United Kingdom (18.4 billion, or 8.8% of the total).
The study, which ACI produced with the market research firm Global Insights Inc., also predicted that electronic payment volume in Germany would grow at a compound annual rate of 6.5% from 2004 to 2009.
William Hoelting, the vice president for investor relations at Transaction Systems, said volume was one of the reasons that his company was keen to get a foothold in Germany. He also said his company is always looking for potential acquisition targets and would be interested in companies that are strong in areas where Transaction Systems is not.
It has offices in almost 20 countries on six continents, and it has customers in 83 countries. It reported revenue of $313 million for last year, and about 40% of it came from the Europe-Middle East-Africa region, Mr. Hoelting said.
EPS was formed in 1998, and its customer list includes several major European financial companies, including Citibank Card Acceptance Germany, Credit Suisse Group, BNP Paribas AG, Deutsche Bank AG, and UBS AG. Besides Germany, it has operations in the United Kingdom, Switzerland, and Romania.
Christian Jaron, the founder of EPS, would remain with the company and would help Transaction Systems develop new products. EPS’ Romanian development center would become part of the Transaction Systems overseas development group.
The deal, expected to close this month, would not affect Transaction Systems’ results for this fiscal year, which will end Sept. 30, the company said. However, it would generate $16 million to $18 million of revenue, and 2 to 4 cents of diluted earnings per share, next fiscal year.
Several other transaction processing software and processing companies are eyeing the overseas market, especially Europe. Many banks there participate in regional or national consortiums to process payments, but U.S. companies such as First Data Corp. and Total System Services Inc. have said that such group efforts are inefficient, and that third-party companies can do a better job of providing processing software and services.
Gwenn Bezard, a research director at Aite Group LLC of Boston, said the sheer size of the German economy, one of the largest in Europe, makes the country an important market for any company hoping to expand in Europe.
The electronic payment volume in Germany makes the country a good destination for Transaction Systems, Mr. Bezard said. “Germans use their debit cards a lot, and they use cash a lot, which means they use ATMs a lot.”
In addition, the German banking market is heavily fragmented, much like the U.S. one, he said, while some of the other European countries, such as France and the United Kingdom, have fewer banks that tend to dominate the market.
Germany has “lots of banks that need to buy software from third-party vendors,” Mr. Bezard said. “It’s a perfect market” for Transaction Systems.
