Although vendor mergers can limit options for customers, shrewd banks could find a way to make D+H’s planned combination with Misys work to their advantage.
D+H announced Monday that it is selling itself to Vista Equity Partners, which plans to combine it with Misys, another Vista holding. The deal, valued at $3.57 billion, is scheduled to close in the third quarter.
Banks that are customers of one or both may look to leverage this situation as a way to get better terms on pricing for certain products.
“You’ll probably have banks that have some services with both of the legacy organizations that will look to improve pricing on those services as the consolidated organization comes together,” said Peter Olynick, senior practice lead for retail banking at NTT Data Consulting. “Vendor sourcing has become very savvy at banks; they may start to immediately look at what they have with each organization and how they can leverage this to get more services at a better price tag.”
Banks that do business with both merger partners should see the transaction as an opportunity to consolidate processes and paperwork and shrink their vendor lists, said Jacob Jegher, senior vice president at Javelin Strategy & Research.
“If it creates a stronger firm with more product offerings, banks could view it as quite positive,” Jegher said.
When vendors merge, banks often have to worry about which products stay and which go, but Olynick said that likely will not be an issue in this deal as many of the products that D+H and Misys offer don’t overlap. It’s too early to tell for sure, though, he said.
“There’s probably a little bit" of redundancy, "but I don’t think banks are going to be overly concerned just yet,” Olynick said.
D+H, based in Toronto, provides payments, lending and regulatory compliance technology to banks, as well as core systems after its 2014 acquisition of core provider Harland Financial Solutions. Misys, which is based in London, offers a range of financial technology solutions, and also launched a “platform-as-a-service” product in September aimed at helping banks move toward open, application programming interface-based models.
The companies projected $2.2 billion in annual revenue when the deal is complete. That could catapult the combined company to the top echelon of core banking technology software providers. By comparison, Jack Henry, which is viewed as the smallest of the Big Three vendors, reported $1.3 billion in revenue in 2015. FIS and Fiserv, the other major core providers, reported $6.6 billion and $5.25 billion, respectively.
D+H and Misys also emphasized that the deal would make them into a global company. That might not necessarily be welcome news to all customers, Jegher said. For instance, D+H has a client base that includes community banks in the U.S., which might be worried they’ll get ignored.
“A small community bank that’s currently a client may wonder, How important am I now to this large global player and will I have a voice?” he said.
Jegher added that the banking industry will likely be wondering what Vista Equity Partners’ ultimate plan is for the combined vendor. He pointed to the private equity firm Thoma Bravo’s 2013 acquisition of Digital Insight, which it sold to NCR Corp a year later.
“What’s the next move for the private equity company?” Jegher asked. “To take [the newly combined company] public? To sell to another investor? To sell off individual components?”
Neither Misys nor D+H would comment for this article. In a press release announcing the merger, Misys CEO Nadeem Syed said it “creates significant opportunity for our customers, our employees and our partners. By coming together, we have the opportunity to create a global fintech powerhouse, positioning us to lead the corporate banking software space, accelerate our cloud-based offerings, and expand our footprint in North America.”
The release further noted that the companies complement each other.
“D+H brings depth in North America and leadership in payments and lending; while Misys has a strong market position in Europe, Middle East, Africa and Asia and leadership capabilities in banking, capital markets, investment management and risk solutions,” said D+H CEO Gerrard Schmid.