Driven by check-imaging technology and diversification by core processors, bank technology vendors made more acquisitions last year than in any other year in more than a decade, but observers do not expect the industry to repeat the feat this year.
However, vendors have certainly not stopped making mergers and acquisitions, and analysts and executives expect the consolidation trend to continue for the foreseeable future.
A pair of vendors announced deals this week.
The Chantilly, Va., Internet banking outsourcing provider Online Resources Corp. said Tuesday that it had agreed to buy Integrated Data Systems Inc., a privately held Woodland Hills, Calif., software company, for $5 million in cash and stock, plus the assumption of $300,000 of debt.
A day earlier Fiserv Inc. of Brookfield, Wis., said it had bought Interactive Technologies Inc., a Summit, N.J., developer of software to manage the fees that banks charge in complex billing arrangements.
Matthew P. Lawlor, the chairman and chief executive of Online Resources, said his company's deal is only the second in its 15-year history - it acquired the online credit-card service provider Incurrent Solutions last fall - and its first in the software market. He also said he is looking for more companies to buy to expand his company's product portfolio.
Online Resources raised $37.4 million in April by selling 4.4 million shares in a follow-on public offering. "That gave us more ammo to do some more acquisitions," Mr. Lawlor said. "If they have some capabilities that we can add onto our platform, then we're real interested."
Fiserv, the banking industry's largest technology provider, has grown by acquisition; since its inception in 1984 it has bought 130 companies or business units. Leslie M. Muma, Fiserv's president and chief executive, said it has averaged about seven deals a year. It made four last year and has made three so far this year.
"As we look into this year, our pipeline of acquisitions looks pretty strong," Mr. Muma said. "We've built a machine where we can crank out 12 acquisitions over the course of a year and we don't even breathe hard."
M. Arthur Gillis, the president of Computer Based Solutions Inc., a Dallas research and consulting firm, said in an interview Tuesday that many bank technology vendors are trying to buy scale.
"It seems like everyone has gotten the message that if you want to grow in this business, organic growth is not going to do it for you," he said.
"It's going to be another five, six, seven years before it stops. The well will go dry. There won't be anything left out there to buy," he said. "Right now, there are some real plums out there to be picked."
Last year bank technology vendors made 36 deals, the most of any single year since he began his tally in 1992, Mr. Gillis said. The previous record of 35 was set in 2001.
Those figures will be included in the 2005 edition of his annual report, "Automation in Banking," which is due out next month. He said he had not yet begun to compile this year's results.
Bill Bradway, a group vice president at the Framingham, Mass., research firm Financial Insights Inc., said he doubted that the deals this year would match last year's pace. "It takes time to digest those acquisitions."
Also, much of last year's activity involved vendors' adding capabilities such as imaging or filling other holes in their lineups, Mr. Bradway said. "You don't have the same environment that existed in 2004."
The two busiest buyers last year, with seven acquisitions apiece, were Metavante Corp., the technology subsidiary of the Milwaukee banking company Marshall & Ilsley Corp., and Jack Henry & Associates Inc. of Monett, Mo.
Metavante's acquisitions included two major providers of check image software and the core-banking software maker Kirchman Corp. Jack Henry's deals, mostly for small companies, provided diversification into a number of new areas, including fingerprint recognition and automated teller machine management.
This year Metavante has closed one deal and announced one more, while Jack Henry has closed five.
Nikolai D. Fisken, a financial services technology and insurance analyst at Stephens Inc. of Little Rock, also predicted vendors would be wary of further acquisitions while they worked on integrating previous deals.
"While '04 was definitely busy, I think '05 is going to be a year when everybody takes a breather," he said. Before taking aim at a new target, "you want to see how the acquisition works itself out first."
However, Carla N. Cooper, an analyst at the brokerage firm Robert W. Baird & Co., said banks now put more emphasis on the financial strength of their vendor partners and are often less willing to work with smaller companies for fear they may fail.
As a result, small vendors with solid technology but low sales figures are often eager to sell themselves to large companies, she said. "There is a premium on financial stability among vendors, and that is driving consolidation."
