TSYS Buys Out Bank’s Stake In Merchant Acquiring Joint Venture

Total System Services Inc., or TSYS, has moved quicker than it originally anticipated in acquiring First National Bank of Omaha’s stake in First National Merchant Solutions LLC.

The two companies formed the joint venture in April (see story).

In a deal that closed Jan. 1, Columbus, Ga.-based TSYS paid First National $169.6 million for its 49% share. Last spring, it paid $150.5 million for a 51% ownership stake in the merchant acquirer, which now is called TSYS Merchant Solutions and has more than 300,000 merchant locations in its portfolio.

TSYS’s intent in forming the joint venture was to one day buy all of it, Troy Woods, the processor’s president and chief operating officer, tells PaymentsSource. “With that said, we had zero intentions to acquire [it] eight months after formation,” he says. “It just turned out to be the opportunistic time. We had written all these agreements (for the joint venture) thinking longer term.”

TSYS and First National Merchant Solutions quickly saw a “chemistry” emerge “that was not just verified by the joint venture but solidified,” Woods says.

The opportunity was right for the bank, says First National spokesperson Kevin Langin. “This gives us a chance to simplify our core banking operations,” Langin tells PaymentsSource. The sale also will help the bank build its capital reserves, he says.

It also marks a cultural shift for the bank, which has a 57-year history running an acquiring business.

“It’s difficult from a cultural perspective, but from a business discussion it made all the sense in the world,” Langin says.

TSYS long has wanted to grow and get closer to merchants, says Mark D. Pyke, president of TSYS Acquiring Solutions, a third-party processor that does not own merchant contracts. TSYS Merchant Solutions, relying on a mix of sales efforts to reach merchants, including direct and through independent sales organizations, will own the merchant contracts, Pyke says.

“This is our first step in getting much larger in direct merchant acquiring,” Pyke says. “We will keep these two business segregated.”

TSYS also is not deterred by Federal Reserve Board’s recent debit-interchange regulation proposal (see story).  Reduced interchange rates may lower merchants’ cost to accept debit cards, prompting them perhaps to promote their use over cash for payment, he says.

“We’re bullish on the merchant-acquiring space,” Pyke says. “We take a long-term view on this space.”

Teams created when the joint venture formed last year will remain in place to continue to look for ways to make the company more efficient, Diana Mehochko, TSYS Merchant Solutions president, tells PaymentsSource. Mehochko joined First National Merchant Solutions in 2005. “That is still in process,” she says.

Human resources, financial and audit-process functions were consolidated early in the joint venture’s formation last year, Woods says.

The acquisition makes sense for both companies, David Fish, an analyst at Mercator Advisory Group Inc., a Maynard, Mass.-based firm, tells PaymentsSource.

“It’s worth it for both parties because the bank doesn’t want the cost of running the business, and TSYS can do it more efficiently since TSYS has greater scale,” he says.

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