Financial services technology solutions provider
Fiserv Inc. (
FISV
)
recently announced that it has acquired Connecticut-based Open
Solutions Inc for approximately $850.0 million. Fiserv paid $55.0
million toward equity, assumed debt of $960.0 million and
received a tax benefit of $165.0 million.
According to Fiserv, the valuation consideration is less than
five times its earnings before interest, taxes, depreciation and
amortization (EBITDA) that includes run-rate synergies and
present value of tax assets. Revenue and EBITDA run rate of Open
Solutions at the time of the acquisition was approximately $320.0
million and $100.0 million, respectively.
Open Solutions Inc is a leading technology provider to banks,
thrifts and credit unions with a strong clientele of 3,300, which
includes more than 800 account processing clients. Its flagship
product DNA is a real-time core banking platform. Open Solutions
offers DNACreator, a tool that banks and credit unions use to
create their own apps for the DNA platform.
Open Solutions' DNAppstore stores apps developed by using
DNACreator. The company also offers other key solutions that
include CUnify and TotalPlus account processing platforms. Open
Solutions Weiland Account Analysis technology is used for
commercial account analysis. The company also offers consultancy
services through Raddon Financial Group.
The acquisition is expected to expand Fiserv's financial
services product portfolio and customer base going forward. Most
of the Open Solutions contracts are long term in nature, which is
significant, as it will add a recurring revenue source to
Fiserv's top-line, going forward.
Fiserv expects to earn revenue synergies of at least $75.0
million and cost synergies of $50.0 million over the next several
years. The acquisition is expected to be significantly accretive
to earnings per share (EPS) going forward.
Fiserv also announced preliminary 2012 results and 2013
guidance. The company expects 2012 adjusted EPS to increase
approximately 12.0% over 2011. Adjusted internal revenue growth
is expected to be 2.0% in 2012. For 2013, Fiserv expects adjusted
internal revenue growth of 3.0% to 4.0% and EPS growth of 15.0%
to 18.0% over 2012.
Our Take
Accretive acquisitions have been a key growth factor for
Fiserv over the years. Although Fiserv did not acquire any
business in 2012, it acquired four in 2011, which contributed
revenues of $30.0 million. We believe that Fiserv will continue
to pursue accretive acquisitions, which will boost its market
share going forward.
Moreover, acquisitions such as Open Solutions will help Fiserv
to fight competition from
Fidelity (
FIS
)
,
Mastercard (
MA
)
and
Global Payments (
GPN
)
in the near term.
However, we note that the addition of Open Solutions debt will
further increase Fiserv's debt level going forward. Higher level
of goodwill and intangible assets (totaling $6.5 billion or 77%
of total assets as of September 30, 2012) also increases the risk
level.
We remain Neutral on Fiserv over the long term. Currently,
Fiserv has a Zacks Rank #2 (Buy).
FIDELITY NAT IN (FIS): Free Stock Analysis
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FISERV INC (FISV): Free Stock Analysis Report
GLOBAL PAYMENTS (GPN): Free Stock Analysis
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