TSYS talks M&A: 'Our goal is to go big or go home'
Speculation has been in the air about whether TSYS—one of the last large legacy processors—may be next in a big M&A deal after the pairings of FIS-Worldpay and Fiserv-First Data were announced this year.
Philip McHugh, senior executive vice president of merchant solutions at TSYS, acknowledges that TSYS can’t sit by idly as the payments industry shifts from older, hardware-based systems to software, cloud-based solutions.
“There’s been a lot of consolidation in the market; it’s obviously a hot topic, a big topic and there’s no doubt TSYS is part of that conversation,” McHugh said during a moderated presentation at the Electronic Transactions Association’s meeting in Las Vegas on Wednesday.
McHugh didn’t say whether TSYS would submit to acquisition, but indicated the company plans to continue on its arc of growth by purchasing smaller, specialized companies that advance its growth goals.
“We’ve got a very clear view of the types of companies we like, where we want to grow. Obviously with the Fiserv and the FIS deals those are big deals, with kind of pan-bank platforms, which have real benefits — but also you could argue detriments as well, it’s a fair debate to have,” McHugh said.
Early last year, TSYS completed its acquisition of Cayan, and months later the Columbus, Ga.-based processor bought iMobile3, both bringing software and versatile new payment-acceptance approaches. The company is still digesting those buys, McHugh said.
”We want to be big, but we don’t want to be a big Frankenstein," he said. "There has to be great integration.”
Meshing Cayan with TSYS’ legacy processing and customer onboarding systems is going well, but it has required a lot of discipline and investment, McHugh said. TSYS expanded its engineering ranks by more than 20% to accomplish the transition, he said.
“iMobile3 was a buy too, but now it’s also a build as we integrate it,” McHugh said.
"Our goal is to go big or go home on the acquiring side."
McHugh expects industry consolidation to continue, but TSYS wants to control its own destiny.
“Our goal is to go big or go home on the acquiring side. We’ve been very open about that. I’ve got very clear pillars of growth. … We’ve got a very clear view of the types of companies we like, where we want to grow and we’re going to proceed down that path,” he said.
Any deal requires months of study and due diligence, but in the case of Cayan, the $1 billion deal brought its own drama when it was announced in 2017.
Cayan had been in talks with more than 20 suitors over more than a year, and the TSYS offer was an eleventh-hour deal, Henry Helgeson, Cayan’s co-founder and CEO who is now president of integrated solutions at TSYS, said during the discussion at ETA.
“It all came together very suddenly, when TSYS emerged from a pool of bidders with a vision that fit with what we wanted,” Helgeson said, noting that a key to finalizing the deal was the top executives’ rapport and sharing many of the same cultural values.
“We had a great product, but we didn’t have the sales scale around it. TSYS was a sales machine, and for Cayan to absorb that sales methodology took a little bit" of adjustment, Helgeson said.
Helgeson will be a close collaborator with McHugh on whatever move TSYS makes next.
“We have to focus our resources on the big bets we’re making right now, the big projects we have, and we can’t build everything, so there are going to be small, nimble, niche-focused players that are always going to be attractive to us. It has to be the right company, the right culture,” Helgeson said.
TSYS is constantly talking to other companies.
“We look at deals every single week—literally hundreds a year, and ones we like, we build on that relationship, so when that company’s ready to go we know the management team, we’ve done some due diligence. For us it’s going to be in verticals, with really good technologies,” McHugh said.
Diane Faro, vice president and general manager at JetPay, which was recently acquired by NCR, said during a different panel discussion at ETA she’s heard that at least one more major payments industry merger may be in the works, though she didn’t name the parties.
Given the cost and complexity of integration when two giants merge, it might make more sense for TSYS to stay in the driver’s seat of any deals, said Eric Grover, a principal with Intrepid Ventures LLC.
“It makes sense—in today’s climate you’ve either got to grow or be absorbed by another company, and TSYS has plenty of margin to continue expanding with smaller deals, maybe even companies overseas,” Grover said.