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First Data Corp., a privately held payments processor, announced today it has cancelled its agreement to purchase InComm Inc., a marketer and distributor of gift and prepaid cards. In a statement, the companies report they have mutually agreed to terminate the deal, which was announced in April (CardLine 4/28). But the companies will continue to have an agreement to work together to provide customers with prepaid card processing, program management and distribution services, according to the companies. A First Data spokesman declined to provide any additional information about the reasons for the termination of the agreement, termination fees or other information. Atlanta-based InComm did not return a call for comment by deadline. The deal fell victim to the collapse of the credit markets, according to Gwenn Bèzard, research director for Boston-based Aite Group LLC. First Data cancelled the deal in an effort to preserve cash and credit lines after it became a privately held company, Bèzard says. Based in Greenwood Village, Colo., First Data said it lost $230.6 million of its credit line when New York-based Lehman Brothers Holdings Inc. went bankrupt earlier this year. (CardLine 9/22). "It has nothing to do with strategy–the acquisition made a lot of sense," Bèzard says. He notes that the cancellation of this deal shows that prepaid card companies have fewer options for mergers and acquisitions in the current credit environment. Smaller companies, especially start-ups, which based their strategy on being bought out as they grew, may face bankruptcy, he says. "Some of the companies that are operating with a few months' cash may not have a path for exiting the market."
