Wausau Financial Systems Inc. of Mosinee, Wis., which sells check imaging software and hardware, is planning for the days when banks will have bought all they need.
And with a new deep-pocketed majority owner, it is looking for acquisitions that could help.
The buyout provides "a fascinating opportunity at a time of tremendous change," said Joseph L. Delgadillo, the former Metavante Corp. chief newly installed as Wausau's president and chief executive.
Wausau is considering companies in related fields that would help it diversify, he said last week.
For now it will keep focusing on check processing, especially remittance and lockbox software, Mr. Delgadillo said. Though check volume is declining, checks are "not going away," he said - "not for many, many years to come."
Wausau had sales of $100 million last year. Mr. Delgadillo aims to double or triple revenue within five years.
Wausau announced Feb. 2 that the Chicago private equity firm Frontenac Co. had bought out its majority stockholder, Robert F. Weirauch, and two other partners. At the same time it announced the appointment of Mr. Delgadillo; Frontenac recruited him for the job, he said last week.
Frontenac, founded in 1971, has more than $1 billion under management. Its portfolio of private companies spans industries including health care, legal services, human resources, marketing services, and publishing. The firm says it specializes in midsize owner-operated companies.
Mr. Delgadillo said he wants to develop more products aimed at the point of sale. In addition, he said, he is very interested in remote capture software that can convert checks into image files at corporate customers' sites. That "is going to be a very significant market," he said.
Looking beyond check processing, Wausau could use its core imaging technology in other markets, such as health care, Mr. Delgadillo said. "We will consider other sectors as well."
James E. Cowie, a managing director at Frontenac, said it will fund Wausau's acquisitions. "We see opportunity to build on the company's leadership in both remittance and image-enabled payment processing," he said. "We're looking at focused acquisitions that expand the company's capabilities and the product offering."
But Wausau could face competition in buying image technology companies. The business has been consolidating quickly; some large processing companies are trying to amass scale and fill gaps in their product lines.
Among the most active acquirers last year was Metavante, Mr. Delgadillo's former employer. Metavante, a unit of the Milwaukee banking company Marshall & Ilsley Corp., bought two of Wausau's rivals in check-image software, Advanced Financial Solutions Inc. of Oklahoma City and VectorSGI, of Addison, Tex.
Mr. Delgadillo spent 17 years at what is now Metavante. He became its CEO in January 1998 and its chairman as well in early 2003.
He resigned abruptly in March of that year. "I was looking for a smaller company that I could take a major stake in, an equity stake, and make a difference," he said last week. He owns a minority stake in Wausau.
Robert Hunt, a senior analyst at TowerGroup of Needham, Mass., a market research unit of MasterCard International, said Wausau needs to diversify if it wants to remain independent and prosper.
Banks and other companies will invest heavily in image processing in the next two or three years, he said, but companies like Wausau will "need a strategy for after the good times are gone."
In the next two years Wausau "is going to have to find a new strategy," Mr. Hunt said. "Bringing in a private equity group gives them the funding to move to a new [customer] base."
Mr. Hunt compared image technology vendors to John H. Harland Co. and Deluxe Corp., the top two check printers, which are facing a similar problem. With demand for checks shrinking, they are remaking themselves.
Harland, of Atlanta has become "a tech company that prints checks," Mr. Hunt said. Deluxe, of Shoreview, Minn., has broadened its printing business; more than half its revenue now comes from small-business printing, not checks.
Wausau first used Frontenac's backing in a deal announced in the same newsy press release that also said that Frontenac was buying into the company and had hired Mr. Delgadillo.
The company bought one of its product development partners, Kyris Image Software of Flower Mound, Tex. Kyris creates optical character-recognition and handwriting-recognition software. The price was not revealed.
