The pressure on merchant acquirers to enable transactions in more channels for more merchant types is accelerating, and TSYS is turning to the M&A market to accelerate its digital diversification, announcing an agreement with Vista Equity Partners to acquire Vista portfolio company TransFirst for $2.35 billion in cash.
"Thirty percent of [TransFirst's] revenue is in the integrated payments space, and their e-commerce operation is bigger and more robust than ours," said M. Troy Woods, president and CEO of TSYS, adding e-commerce and integrated payments are the two fastest growing parts of the merchant acquiring business.
The purchase price of the TransFirst acquisition well exceeds the price of TSYS' 2013 purchase of prepaid card marketer NetSpend, a $1.4 billion acquisition that the processor described as "transformational" both for its scale and for being TSYS' first consumer-facing business.
TransFirst has more than 1,300 technology and referral partners in areas such as healthcare, integrated software vendors (ISVs), not-for-profit, referral banks, associations and e-commerce. The ability to offer integrated payments is considered a key element for merchant acquirers in the digital commerce age, and TSYS has also partnered with FPS plus to reach more health care merchants.
"[TransFirst] participate in some very attractive high growth markets," Woods said.
Traditional processors and acquirers are rapidly adding services to broaden their appeal to merchants, which are pressured to adopt EMV-chip card payments, new security technology and respond to mobile commerce's impact on shopping and transacting in different venues—a trend generally referred to as "omnichannel."
Card networks, traditional processors and terminal makers are all adding technology. Verifone, for example, has partnered with Microsoft and is piloting beacon technology to maintain its position in the terminal market. First Data, a more direct rival to TSYS, is also in the midst of a multi-year automation overhaul; just last week it update its mobile payments technology for the point of sale.
TSYS' Board of Directors has approved the transaction, which is expected to close in the second quarter pending regulatory approvals. Mark Pyke, TSYS' senior vice president and president of the TSYS merchant segment, will leave the company at the close of the transaction. John Slonsky, TransFirst's president and CEO, will assume Pyke's duties, according to a TSYS press release.
TransFirst has more than 235,000 small and medium sized businesses, which will extend TSYS' customer base to more than 654,000 merchant outlets, making it the U.S.'s sixth largest acquirer.
"It doubles our merchant business and doubles our revenue. We can pick up scale, which is what we wanted to do," Woods said. "And it puts us in a leadership position in merchant acquiring, in addition to our positions in processing and prepaid program management."
TSYS also reported earnings on Tuesday. For the year ending Dec. 31, the company reported earnings per share of $2.46, an increase of 25.5%; and income of $362.6 million, an increase of 31.8%. It projected full year 2016 earnings of $2.56 per share to $2.62 per share.