Credit-card and payments processor TSYS said Tuesday it is making the largest acquisition in its history, paying $2.35 billion for TransFirst, a privately owned firm that serves merchants across the U.S.
The all-cash deal, with TSYS buying TransFirst from San Francisco-based Vista Equity Partners, is expected to close in the second quarter of this year, pending regulatory approval. TransFirst is based in Hauppauge, N.Y. It also has facilities in Broomfield, Colo., Aurora, Colo., Franklin, Tenn., and Cypress, Calif.
This easily surpasses the previous largest purchase by TSYS — the $1.4 billion buyout in 2013 of Austin, Texas-based NetSpend, a company that markets and sells prepaid cards, often for those with no bank accounts.
The acquisition will make TSYS the 6th-largest U.S. merchant acquirer in terms of net revenue, the company said, with its operation serving more than 645,000 merchant outlets nationwide. TransFirst’s specialty is small- to medium-sized businesses.
“We believe it is a strategic imperative to hold a leadership position within the markets we play,” TSYS Chairman, President and Chief Executive Officer Troy Woods told industry analysts during a conference call after the announcement and the firm’s earnings report release.
“The U.S. (merchant) acquiring market is a very large market. It is the largest addressable market in which TSYS participates,” said Woods, noting the sector at the moment is valued at $13 billion. “At the end of the day, TSYS needed to enhance its merchant business in order to remain competitive in the rapidly changing acquiring landscape.”
The acquisition also will add a sizeable number of employees to the TSYS payroll. TransFirst has about 1,000 workers. The TSYS workforce already totals roughly 10,500 worldwide, with about 4,800 of those earning a paycheck in Columbus, where the company is headquartered overlooking the Chattahoochee River.
The combined TSYS and TransFirst merchant operation will handle about 1.2 billion transactions, generating $117 billion in sales volume, the Columbus company said. TransFirst’s customer base includes software vendors, health care, not-for-profit entities, banks and online commerce.
“With the added strength of TransFirst, TSYS will be uniquely positioned with significant scale and strength across issuer processing, merchant services and prepaid program management,” Woods said in a statement issued with the TransFirst release. “I believe our ability to offer market-leading services through this distribution network and across the payments spectrum will be unmatched.”
The acquisition also will bring a change in leadership within TSYS, with Mark Pyke, current senior executive vice president and president of the TSYS Merchant business line, leaving the company after a six-year stint. He will “pursue a new professional challenge in the payments industry,” the firm said.
Taking charge of the combined merchant operation will be John Shlonsky, current president and CEO of TransFirst. He expressed excitement about the possibilities that lie ahead of the two companies in an “increasingly competitive” payments industry.
“I’m so excited for all of us here at TransFirst and TSYS,” Shlonsky said on the conference call. “We’ve actually been partners for quite some time. TransFirst has and still utilizes TSYS for front-end, back-end and gateway services."
The TransFirst executive said he is comfortable with TSYS and its overall operations and atmosphere.
“I can tell you firsthand from my interaction with TSYS and, particularly, with the executive team, it makes me feel confident that our values and how we treat each other and our clients are firmly aligned,” he said.
Various financial and legal firms helping to finalize the major acquisition between TSYS and TransFirst include Bank of America, Merrill Lynch, GCA Savvian Advisors, First Annapolis Consulting, King & Spalding LLP, Credit Suisse, Goldman Sachs, J.P. Morgan and Kirkland & Ellis.
In its earnings report Tuesday, TSYS said it has repurchased 5.2 million shares of common stock in 2015. TSYS Chief Financial Officer Paul Todd noted on the call that the company will cut back on the stock repurchases until it digests some of the acquisition costs and TransFirst ramps up into the TSYS revenue stream.