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 the companies announced today.
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. The joint venture would operate as an independent entity, TSYS says.
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.
The joint venture would help develop “new value-creation opportunities and synergy that were unavailable prior to the joint venture,” the bank says in a news release. Bank officials referred inquiries to TSYS.
“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,” a TSYS spokesperson tells PaymentsSource. “This joint venture allows TSYS to capture a greater share of revenue while simultaneously entering the market as a top-10 acquirer. Adding these types of gains would enhance the TSYS market offer and boost long-term returns to shareholders.”
In 2009, First National Merchant Solutions had approximately $74 billion in sales volume and net revenue of $93 million.
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 independent sales organizations and agent banks that refer merchants to the acquirer.
TSYS Acquiring Solutions, an “acquirer” processor, would continue to operate as a unit of TSYS. First National Merchant Solutions had been a customer of TSYS Acquiring, and that relationship would not change, a TSYS spokesperson says. TSYS Acquiring serves acquirers and does not process directly for merchants, a model that would not change because of the joint venture, the spokesperson says.
The joint venture’s impact on competitors likely would be minor, observers say.
“The impact will be relatively modest,” Robert Dodd, an analyst at Memphis, Tenn.-based Morgan Keegan & Co., tells PaymentsSource. “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,” Fish tells PaymentsSource. “The reason TSYS and First National Bank of Omaha did this is to maintain a competitive advantage.”
Still unknown is what TSYS would 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.
First National Merchant Solutions’ board of directors would consist of three TSYS executives and two First National Bank of Omaha executives. Diana Mehochko, president of the bank subsidiary merchant acquirer, would be president of the joint venture.
