Total System Services Inc. is moving into merchant acquiring by creating a joint venture with First National Bank of Omaha.
TSYS, a Columbus, Ga., processor, said Monday that it would pay $150.5 million for a 51% stake in the Nebraska bank's First National Merchant Solutions acquiring arm.
The deal is expected to close April 1 and would make TSYS a "full-service merchant acquirer for the first time in our company's history," Philip W. Tomlinson, the processor's chief executive, said in a press release.
"Among our long-term corporate goals has been the desire to expand beyond these services and move closer to the merchant and the consumer, where the transaction occurs," TSYS spokesman Cyle Mims said in an interview.
"The new company allows TSYS to enter the acquirer space," he said. "This joint venture allows TSYS to capture a greater share of revenue while simultaneously entering the market as a top-10 acquirer. Adding these types of gains will enhance the TSYS market offer and boost long-term returns to shareholders."
First National Merchant Solutions had sales volume of about $74 billion last year and net revenue of $93 million.
It is a customer of TSYS' merchant processing unit, TSYS Acquiring Solutions, and Mims said that relationship will not change. TSYS Acquiring Solutions processes transactions for merchant acquirers but does not work directly with merchants.
Robert Dodd, an analyst at the Morgan Keegan & Co. unit of Regions Financial Corp., speculated that TSYS could use its cash reserves, totaling $450 million according to its 2009 annual report, to invest in expanding the venture.
"What is going to be the new approach to the U.S. market?" he asked. "And how much money are they willing to invest in maybe making portfolio acquisitions?" Without such investments, First National Merchant Solutions would continue to grow organically but not as fast as it could with investments.