Fiserv Buys Open Solutions - Analyst Blog

By
A A A

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 Report

FISERV INC (FISV): Free Stock Analysis Report

GLOBAL PAYMENTS (GPN): Free Stock Analysis Report

MASTERCARD INC (MA): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: EPS , FIS , FISV , GPN , MA

Zacks.com

Zacks.com

More from Zacks.com:

Related Videos

Stocks

Referenced

Most Active by Volume

91,252,153
  • $13.78 ▼ 4.31%
68,133,496
  • $12.93 ▲ 6.77%
57,268,074
  • $46.13 ▲ 2.47%
43,432,023
  • $105.22 ▲ 0.37%
40,880,685
  • $13.46 ▲ 8.90%
40,712,405
  • $98.62 ▲ 0.82%
39,776,976
  • $16.72 ▲ 0.72%
34,688,871
  • $11.16 ▲ 3.05%
As of 10/24/2014, 04:15 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com