First National Bank of Omaha plans to relinquish controlling interest in its First National Merchant Solutions merchant-acquiring arm to Total System Services Inc. in a joint venture announced this week.
The move would make Columbus, Ga.-based TSYS a “full-service merchant acquirer for the first time in our company’s history,” Philip W. Tomlinson, TSYS CEO and chairman, noted in a press release.
The companies expect to close the deal, which includes marketing and bank-sponsorship agreements with First National Bank of Omaha, on April 1, pending regulatory approval.
TSYS plans to pay the Omaha, Neb.-based bank $150.5 million for a 51% stake in the new company, dubbed First National Merchant Solutions LLC. The bank would retain 49% of the new enterprise, which would have about 300,000 merchants in its portfolio.
In 2009, First National Merchant Solutions had approximately $74 billion in sales volume and net revenue of $93 million.
The joint venture will help develop products and services “that were unavailable prior to the joint venture,” the bank says in a news release. Bank officials referred inquiries to TSYS.
The joint venture will operate as an independent entity with Diana Mehochko continuing on as president, TSYS says.
ISOs that work with First National Merchant Solutions should expect little change at this point, Mehochko tells ISO&Agent Weekly.
As the joint venture progresses, however, Mehochko anticipates some changes.
“We are looking at both sides,” says Mehochko, referring to products that customers of either parent company could purchase.
“Among our long-term corporate goals has been the desire to expand beyond [back-office payment processing] services and move closer to the merchant and the consumer, where the transaction occurs,” says a TSYS spokesperson. “This joint venture allows TSYS to capture a greater share of revenue while simultaneously entering the market as a top-10 acquirer.”
TSYS also anticipates selling its products and services through First National Merchant Solutions’ sales organization, which includes its own sales force and those of third parties, such as ISOs and agent banks that refer merchants to the acquirer.
TSYS Acquiring Solutions, an “acquirer” processor, will continue to operate as a unit of TSYS. First National Merchant Solutions had been a customer of TSYS Acquiring, and that relationship will not change, the spokesperson says. TSYS Acquiring serves acquirers and does not process directly for merchants, a model that will not change because of the joint venture, the spokesperson says.
The joint venture’s impact on competitors likely will be minor, observers say.
“The impact will be relatively modest,” Robert Dodd, an analyst at Memphis, Tenn.-based Morgan Keegan & Co., tells ISO&Agent Weekly. “It will get TSYS into the acquiring space, but that’s the norm.”
David Fish, senior analyst at Mercator Advisory Group Inc., a Maynard, Mass.-based consulting firm, agrees. “The change occurring here is the TSYS equity stake in a joint-venture context,” says Fish. “The reason TSYS and First National Bank of Omaha did this is to maintain a competitive advantage.”
Still unknown is what TSYS will do with the joint venture, specifically how much additional capital it might inject into the enterprise, Dodd says.
TSYS could use its $450 million in cash reserves to invest in the U.S. market, a likely strategy for the new company, Dodd says.
“What is going to be the new approach to the U.S. market, and how much money are they willing to invest in maybe making portfolio acquisitions?” Dodd asks. Without such an investment, First National Merchant Solutions would continue to grow organically but not by as much as it could with investments, he says.
Growth is a major reason TSYS and First National Bank of Omaha decided on a joint venture, Mehochko says.
“There is an opportunity to grow not only organically but through acquisitions,” she says. Any acquisitions will be in line with the strategic objectives of each of the joint venture’s partners, she says.
First National Merchant Solutions LLC board of directors will consist of three TSYS executives and two First National Bank of Omaha executives.
