Total System Services Inc. has moved quicker than it originally anticipated in acquiring First National Bank of Omaha's stake in First National Merchant Solutions LLC.
In a deal that closed Jan. 1, TSYS, of Columbus, Ga., paid the Nebraska bank $169.6 million for its 49% share in the joint venture the companies formed in April. Last spring, TSYS paid $150.5 million for a 51% ownership stake in the merchant acquirer, which is now called TSYS Merchant Solutions and has more than 300,000 merchant locations in its portfolio.
TSYS' intent in forming the joint venture was to one day buy all of it, Troy Woods, the processor's president and chief operating officer, said in an interview.
"With that said, we had zero intentions to acquire [it] eight months after formation," he said. "It just turned out to be the opportunistic time. We had written all these agreements [for the joint venture] thinking longer term."
TSYS and First National Merchant Solutions quickly saw a "chemistry" emerge "that was not just verified by the joint venture but solidified," Woods said.
The opportunity was right for the bank, said First National spokesman Kevin Langin. "This gives us a chance to simplify our core banking operations," Langin said. The sale also will help First National build its capital reserves, he said. It also marks a cultural shift for First National, a unit of First National of Nebraska Inc. with a 57-year history running an acquiring business. "It's difficult from a cultural perspective, but from a business discussion it made all the sense in the world," Langin said.
TSYS long has wanted to expand and get closer to merchants, said Mark D. Pyke, the president of TSYS Acquiring Solutions, a third-party processor that does not own merchant contracts. TSYS Merchant Solutions, relying on a mix of sales efforts to reach merchants, including direct and through independent sales organizations, will own the merchant contracts, he said. "This is our first step in getting much larger in direct merchant acquiring," Pyke said. "We will keep these two business segregated."
TSYS also is not deterred by the Federal Reserve Board's recent debit interchange regulation proposal. Reduced interchange rates may lower merchants' cost to accept debit cards, prompting them perhaps to promote their use over cash, Pyke said. "We're bullish on the merchant acquiring space," Pyke said. "We take a long-term view on this space."
Teams created when the joint venture formed will remain in place to continue to look for ways to make the company more efficient, said Diana Mehochko, president of TSYS Merchant Solutions. Mehochko joined First National Merchant Solutions in 2005. "That is still in process," she said.
Human resources, financial and audit-process functions were consolidated early in the joint venture's formation last year, Woods said.
The acquisition makes sense for both companies, said David Fish, an analyst at Mercator Advisory Group Inc. of Maynard, Mass. "It's worth it for both parties because the bank doesn't want the cost of running the business, and TSYS can do it more efficiently since TSYS has greater scale," he said.
