Transaction Systems Architects Inc., seeking added recurring-services revenue, is buying the cash management software provider P&H Solutions Inc. for $150 million in cash.
Transaction Systems is a leading vendor of back-office transaction processing software, but its products are typically used in-house. P&H, by contrast, gets 60% of its revenue from outsourcing. Philip G. Heasley, Transaction Systems’ president and chief executive officer, said that buying P&H would allow him to remake his company.
He called the deal, announced Tuesday, a “transformative event,” and said on a conference call with analysts that Transaction Systems would use the P&H platform to “offer the rest of our solutions as a service.”
Mr. Heasley, a former president and chief operating officer of U.S. Bancorp, joined Transaction Systems in March 2005, and in October announced a reorganization that focused more attention on the Omaha company’s ACI Worldwide, which develops software for automated teller machines and point of sale transactions. Transaction Systems also produces software for wire transfers and automated clearing house payments, and infrastructure software and services.
What was missing, Mr. Heasley said, was outsourcing services, which he called “an empty box” in the reorganization plan. P&H, of Newton, Mass., “is the gold standard when it comes to cash management, both in their ASP offering and their solution set that companies run directly themselves,” he said. (ASP stands for application service provider.)
The deal for P&H, which was known as Politzer & Haney Inc. until late 2004, is expected to close by September and add $40 million to $42 million to Transaction Systems’ revenue in fiscal 2007.
Transaction Systems said that P&H’s president, Ralph Dangelmaier, would become the president of its global software hosting business. It also said that it planned to use its global reach to offer the P&H cash management system in other parts of the world. P&H has done virtually all its marketing in the United States.
Mr. Dangelmaier said that “more and more businesses are getting online, and we have captured a large part of that market.”
David R. Bankhead, a senior vice president at Transaction Systems and its chief financial officer, said it expects P&H to continue to post the 20%-21%-a-year revenue growth it has reported for the past several years.
The privately held P&H, which reported 2004 revenue of $28 million, was No. 93 in American Banker’s 2005 FinTech 100 list, published in November. Although executives would not provide its current revenue, its recent years’ growth rate would indicate revenue of $33.6 million in 2005 and $40.3 million this year.
P&H’s roughly 100 customers include 12 of the top 25 U.S. banks. Among the 12 are Sovereign Bank, TD Banknorth, Countrywide Bank, Merrill Lynch Bank, First National Bank of Omaha, Wells Fargo, ABN Amro, Citibank, Royal Bank of Scotland’s Citizens Bank, JPMorgan Chase, and PNC Bank.
Mr. Bankhead said Transaction Systems had projected P&H’s 2007 revenue at $45.5 million to $47.5 million, before reducing the number by $5.5 million for deferred revenue, the amortization of intangibles, and other accounting.
The acquisition is expected to reduce Transaction Systems’ earnings in 2007 but contribute 10 cents a share to the bottom line in 2008, Mr. Bankhead said.
Transaction Systems, which has more than 800 customers in 83 countries, ranked No. 37 in the 2005 FinTech 100.
Analysts expect Transaction Systems to report $390 million of revenue for its fiscal 2007, which will end Sept. 30 of next year.
Jacob Jegher, a senior analyst in Celent LLC’s banking group, said further consolidation in the cash management market is likely.
“A company like TSA, which has a solid foundation in the payments space, is looking to spread its wings and take corporate payments to the next level,” Mr. Jegher said. “Payments are a subset of cash management.”
Celent is studying 10 cash management vendors. “The question is, can that many vendors support the number of sales that are occurring in the cash management space?” Mr. Jegher said. “There will be some further consolidation.”
Maggie Scarborough, a senior analyst at Financial Insights Inc. in Framingham, Mass., a unit of the technology publisher International Data Group Inc., said that “more and more, the payments business is becoming end-to-end,” and that buying P&H would give Transaction Systems “the channel” to allow it to serve banks’ corporate clients.
