On Tuesday, global financial services provider
Total System Services Inc.
) announced its pact to acquire leading prepaid debit card
NetSpend Holdings Inc.
) for $1.4 billion. The deal is scheduled to culminate by
mid-2013, once the regulatory compliances are fulfilled.
Accordingly, Total System offered the deal value at a 30%
premium to NetSpend's closing price of $12.29 on Tuesday, which
aggregates to $16 per share. Excluding the expenses related to
the transaction, the acquisition is likely to be accretive within
the first year of completion.
The acquisition of NetSpend will not only diversify Total
System's business basket but also help it penetrate deeper into
the electronic financial services market. According to First
Annapolis Consulting, this market is projected to grow at an
annual rate of 20% in the next 4 years.
With over 2.4 million accounts, 500 retail distributors and
130,000 reload locations; NetSpend holds a wide distribution
network for its prepaid cards. The company also offers corporate
payroll card solutions through its strong online, mobile and
direct marketing channels.
Hence, the acquisition is expected to complement Total
System's long-term growth strategy of inflating its top-line
growth through a diversified portfolio. The addition of this
rapidly growing prepaid card business will accentuate the
company's operating and competitive leverage, as this card
segment is beyond the stringent regulations that are faced by the
credit and debit cards.
The Inorganic Growth Strategy
Total System continues to develop and enhance its processing
solutions by developing solutions and strategic acquisitions to
expand its service offerings. Thus far, most of the company's
acquisitions were in the merchant acquiring space.
In 2011, the company acquired the whole of First National
Merchant Solutions LLC (FNMS), TermNet Merchant Services and
Vanguard Payment Systems Inc. under its brand TSYS - Merchant
Solutions (TMS). Last year, Total System also bought a 60% stake
in Central Payment Co. LLC and acquired ProPay. We believe that
the new acquisition should further help perk up growth of the
While Total System holds a healthy balance sheet and operating
cash position at the end of 2012, the deal-value could impel the
company to raise debt. This may have certain negative
implications on the company's financial leverage at least for
some time. Hence, we remain on the periphery to analyze the
future developments in this company.
Currently, Total System carries a Zacks Rank #2 (Buy). Some
more stocks in the same financial services sector carrying the
same Zacks Rank include
Global Payments Inc.
GLOBAL PAYMENTS (GPN): Free Stock Analysis
NETSPEND HLDGS (NTSP): Free Stock Analysis
TOTAL SYS SVC (TSS): Free Stock Analysis
VISA INC-A (V): Free Stock Analysis Report
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