Posted by Mark Brousseau
Vijay Balakrishnan, president of StratEx LLC (770-598-5747, www.stratexllc.blogspot.com) passes along his insights on the recent acquisition of Goldleaf Financial Solutions by Jack Henry and Associates.
The recent announcement that Jack Henry and Associates (Nasdaq: JKHY) would acquire Goldleaf Financial Solutions, Inc. (Nasdaq: GFSI) is yet another marker in the clear trend towards consolidation in the banking and payment solutions space. While significantly modest in scale and scope than the Fidelity- Metavante merger, it fits the template du jour of core solution providers filling out their payments repertoires, with a particular focus on the check and ACH vehicles.
Goldleaf has grown through acquisitions: Community Banking Systems, Data Trade, Alogent, and the original Goldleaf to name a few. Many of these acquisitions were predominantly debt financed. Low revenue growth, an increasingly difficult EBITDA (earnings before interest, taxes, depreciation and amortization) picture, and the debt load explain Goldleaf's decision to seek an exit through divestiture. At a purchase price of about $19 million (not including the retirement of some $42 million in Goldleaf debt), Jack Henry is getting value for its money, given that Goldleaf had paid $42 million for Alogent alone in January, 2008.
The less than stellar performance of Goldleaf does not vitiate the value of its component business units. Alogent was arguably the pace setter for distributed check capture in the run-up to, and in the couple of years following the passage of Check 21. They are the leaders in teller capture, and have implemented their solution integrated with varied teller systems like Argo, Getronics, Siebel, S1 and other in-house platforms. Their customers include JP Morgan Chase, SunTrust, Key Bank, HSBC, and international names like Lloyds TSB, Barclays Bank and Servipag- all with sizable distributed capture implementations. Less known is Goldleaf's strong presence in ACH solutions for small institutions. "It is the PEP+ for small banks", according to an industry insider, drawing an analogy with Fiserv's dominant big bank PEP+ solution.
The dark cloud in the Goldleaf story is the lack of exploited synergy between the business units. There are product overlaps- multiple merchant capture offerings between Goldleaf, Alogent and Community Banking Systems for example. The component companies appear to operate as independent units without the benefit of a cohesive brand and product strategy. The rationalization of overlapping Goldleaf product lines and those already existing within the Jack Henry family, and the development of a clear and consistent go-to-market strategy would be one of the immediate challenges at Jack Henry's doorstep.While a blog is not the right vehicle to articulate a comprehensive strategy, it is interesting to consider a few possibilities:
... Reducing the overlap in branch, merchant and other distributed capture offerings (both licensed and outsourced) makes eminent sense, from market messaging, cost of development and support perspectives.
... Exploiting the synergies between Goldleaf's strong ACH presence and Jack Henry's significant market share in small institution core processing is another obvious opportunity. Less intuitive perhaps is a possible link between the check and ACH lines of business as the convergence between imaging and ACH conversion plays out.
... It should be a no-brainer to integrate the Goldleaf (Alogent) teller capture solution and strong expertise with Symitar, Core Director and other teller platforms. As previously observed on StratEx Insights, teller capture will increasingly be brought to market bundled with teller platforms.
... The Data Trade division brings Document Management and Remittance Processing capability to the mix. There are multiple converging paradigms at play here. There is obvious synergy between the loan and deposit modules of Jack Henry core systems and document management. Remittance processing is headed in two directions. There is an emerging opportunity for retail "remote remittance" which dovetails nicely with merchant capture. Both "whole-tail" and wholesale remittance processing increasingly have a need for document management, within the ambit of a well thought out Content Management strategy.
... The Alogent part of Goldleaf brings international expertise to Jack Henry with customers in the UK, and Chile. Goldleaf is the dominant player in the UK check market. While it can be argued that the UK check market is declining rapidly, the account presence with leading banks can perhaps be leveraged to introduce other products from within the Jack Henry portfolio to markets beyond U.S. shores.
... While Jack Henry has historically served smaller institutions, Goldleaf (via Alogent) brings a Global 50 customer list. The peaks and valleys of whale-size deals, and the high customization needs of these institutions are radically different from Jack Henry's traditional customer base. With the opportunity to scale these heights comes the challenge of getting one's head around a very different business model.
Lastly, consider this possibility. As I said earlier, it is a no-brainer to integrate the Goldleaf teller capture solution with Jack Henry teller platforms. But what if they went the other way?
Goldleaf's biggest potential competitor in the teller capture market in the top 50 banks is Argo Data Systems, Inc.. Argo enjoys an 80% market share in big bank teller deployments. While Goldleaf has successfully integrated its solution with Argo's teller system in the past, Argo has in the past few years, hired away a team of check processing experts from Metavante to build their own capture solution. It is likely to be increasingly difficult to compete against such a bundled Argo offering. But what if Jack Henry went the other way, scaled up one of its teller platforms, bundled it with Goldleaf's teller capture, and took Argo head on in the top 50 banks?
Now.....that would be a turning leaf worth watching!
Showing posts with label Jack Henry. Show all posts
Showing posts with label Jack Henry. Show all posts
Wednesday, September 9, 2009
Saturday, March 29, 2008
Barron's High On Fiserv
Posted by Mark Brousseau
An interesting article on Fiserv in Barron's:
Fiserv Is Largely Immune To Banking's Plagues
By JACK WILLOUGHBY
THERE ARE SOME BANK-RELATED companies whose earnings are likely to rise this year.
One of them is Fiserv, a Brookfield, Wis.-based supplier of systems and services that provide banks with the wherewithal to post checks, open new checking and savings accounts, and keep track of loans. Because banks are its main clients, Fiserv (ticker: FISV) has seen its shares dragged down by about 20% since the summer of 2007, to 48.17 last week. But as a founder and former CEO George Dalton says, "No matter how troubled the bank may be, its customers still have to write checks, make payments and pay mortgages."
Under 48-year-old CEO Jeff Yabuki, the company -- which has absorbed more than 100 enterprises over the years -- has sold off a mortgage-credit-reporting business, most of its health-management businesses and a majority of its investment-services group to pay down debt and refocus on its financial-services core.
It's also taken steps to solidify its already-substantial hold on that marketplace: Last year, Yabuki, the former chief operating officer for H&R Block, purchased electronic bill-payment leader CheckFree for $4.4 billion. The acquisition not only gets Fiserv into a fast-growing market, but allows it to sell its own wares to the big banks and corporations that CheckFree serves.
The company, says Yabuki, is "becoming a pure play in the provision of technology-processing to financial institutions." Fiserv last year got 75% of its $3.9 billion in revenue from these core services.
That also lets Fiserv participate in any forthcoming banking recovery without the same risks posed by a bank's credit portfolio.
FISERV'S SAGGING STOCK PRICE offers "an appealing entry point to an industry-leading financial-services processor poised to boost organic growth and margins," according to a report from John Kraft, an analyst at D.A. Davidson who has a Buy rating on the stock. He has a 65 price target on the shares, more than 30% above their recent value.
Fiserv stock now trades at about 14 times expected 2008 earnings of $3.42 a share, about in line with competitors such as Fidelity National Information Services, Metavante Holdings and Jack Henry & Associates. But that multiple doesn't reflect expectations that Fiserv's earnings will rise by almost 19% in 2009 due in part to economies achieved in the CheckFree purchase. The market is valuing the shares at about 12 times '09 earnings of $4.06 apiece -- below Metavante's 13.4 and Jack Henry's 16.6 but very near Fidelity's 11.9.
That's a pretty cheap multiple for a company that holds a commanding 34% share of the core processing business -- taking deposits and making loans -- that banks and credit unions do. Fiserv's customers, who renew its services at a healthy 90%-plus rate, usually sign three-to five-year contracts and pay a fee based either on the assets under management or the volume of transactions.
Although the number of banks almost halved from the early 1990s to about 8,700 by 2006, banking assets doubled to $12 trillion in that time. That provides plenty of opportunities for Fiserv. The drastic consolidation in the industry -- with all those legacy network systems to sort through -- also increases the need for technology solutions like those Fiserv provides.
Small banks or credit unions with limited technology groups outsource almost all of their transaction-processing chores to Fiserv, while others use a narrower selection of its systems.
The very biggest banks usually have their own systems -- however, Fiserv has begun to make inroads with them as well, and estimates that 88 of the largest 100 banks already use more than one Fiserv product. The CheckFree acquisition should help Fiserv improve its penetration still further.
The deal also offers both organizations a chance to diversify. Bank of America, for instance, previously accounted for nearly one-fifth of CheckFree's revenue, a portion that would be about 5% of the combined company's sales. And Fiserv can market its own suite of offerings to these bigger customers as well as CheckFree's electronic bill-payment and Internet services to its own customers.
CHECKFREE SHOULD CONTRIBUTE NOT only to Fiserv's revenue growth this year and next but also to margins, as Yabuki squeezes out costs. Kraft of Davidson estimates that operating margins should increase to 20% in '09, from 18%.
The Bottom Line:
Fiserv shares look cheap. Baring a long recession or major acquisition problems, they could rise by 30% or more in the next year.
Yabuki says the CheckFree merger is proceeding smoothly -- reflecting, in part, the fact that Fiserv, the product of the combination of a subsidiary of Midland Bank of Milwaukee and an affiliate of Freedom Savings and Loan many years ago, has done scores of these deals.
Yes, Fiserv is vulnerable if a sustained recession forces banks to curtail tech spending drastically, or if some of the expected synergies with CheckFree don't materialize.
But Yabuki argues that analysts and investors are unfairly painting Fiserv "with the same brush that's used on the banking system. Their basic idea," the CEO says, "is that the banks, our clients, would stop spending on technology in a slowdown. But they forget that the kind of processes we offer are really nondiscretionary."
Fiserv, which has bought back more than 36 million of its shares over the last three years, does have Wall Street fans. "This is a stock that could easily benefit from both earnings and multiple expansion, even in a slow economy," says Clark Shields, business-services analyst for T. Rowe Price, a buyer of the stock. He thinks the shares could rise more than 15, to north of 65, in the next 12 months. That kind of near-term gain isn't in the cards for most banks.
An interesting article on Fiserv in Barron's:
Fiserv Is Largely Immune To Banking's Plagues
By JACK WILLOUGHBY
THERE ARE SOME BANK-RELATED companies whose earnings are likely to rise this year.
One of them is Fiserv, a Brookfield, Wis.-based supplier of systems and services that provide banks with the wherewithal to post checks, open new checking and savings accounts, and keep track of loans. Because banks are its main clients, Fiserv (ticker: FISV) has seen its shares dragged down by about 20% since the summer of 2007, to 48.17 last week. But as a founder and former CEO George Dalton says, "No matter how troubled the bank may be, its customers still have to write checks, make payments and pay mortgages."
Under 48-year-old CEO Jeff Yabuki, the company -- which has absorbed more than 100 enterprises over the years -- has sold off a mortgage-credit-reporting business, most of its health-management businesses and a majority of its investment-services group to pay down debt and refocus on its financial-services core.
It's also taken steps to solidify its already-substantial hold on that marketplace: Last year, Yabuki, the former chief operating officer for H&R Block, purchased electronic bill-payment leader CheckFree for $4.4 billion. The acquisition not only gets Fiserv into a fast-growing market, but allows it to sell its own wares to the big banks and corporations that CheckFree serves.
The company, says Yabuki, is "becoming a pure play in the provision of technology-processing to financial institutions." Fiserv last year got 75% of its $3.9 billion in revenue from these core services.
That also lets Fiserv participate in any forthcoming banking recovery without the same risks posed by a bank's credit portfolio.
FISERV'S SAGGING STOCK PRICE offers "an appealing entry point to an industry-leading financial-services processor poised to boost organic growth and margins," according to a report from John Kraft, an analyst at D.A. Davidson who has a Buy rating on the stock. He has a 65 price target on the shares, more than 30% above their recent value.
Fiserv stock now trades at about 14 times expected 2008 earnings of $3.42 a share, about in line with competitors such as Fidelity National Information Services, Metavante Holdings and Jack Henry & Associates. But that multiple doesn't reflect expectations that Fiserv's earnings will rise by almost 19% in 2009 due in part to economies achieved in the CheckFree purchase. The market is valuing the shares at about 12 times '09 earnings of $4.06 apiece -- below Metavante's 13.4 and Jack Henry's 16.6 but very near Fidelity's 11.9.
That's a pretty cheap multiple for a company that holds a commanding 34% share of the core processing business -- taking deposits and making loans -- that banks and credit unions do. Fiserv's customers, who renew its services at a healthy 90%-plus rate, usually sign three-to five-year contracts and pay a fee based either on the assets under management or the volume of transactions.
Although the number of banks almost halved from the early 1990s to about 8,700 by 2006, banking assets doubled to $12 trillion in that time. That provides plenty of opportunities for Fiserv. The drastic consolidation in the industry -- with all those legacy network systems to sort through -- also increases the need for technology solutions like those Fiserv provides.
Small banks or credit unions with limited technology groups outsource almost all of their transaction-processing chores to Fiserv, while others use a narrower selection of its systems.
The very biggest banks usually have their own systems -- however, Fiserv has begun to make inroads with them as well, and estimates that 88 of the largest 100 banks already use more than one Fiserv product. The CheckFree acquisition should help Fiserv improve its penetration still further.
The deal also offers both organizations a chance to diversify. Bank of America, for instance, previously accounted for nearly one-fifth of CheckFree's revenue, a portion that would be about 5% of the combined company's sales. And Fiserv can market its own suite of offerings to these bigger customers as well as CheckFree's electronic bill-payment and Internet services to its own customers.
CHECKFREE SHOULD CONTRIBUTE NOT only to Fiserv's revenue growth this year and next but also to margins, as Yabuki squeezes out costs. Kraft of Davidson estimates that operating margins should increase to 20% in '09, from 18%.
The Bottom Line:
Fiserv shares look cheap. Baring a long recession or major acquisition problems, they could rise by 30% or more in the next year.
Yabuki says the CheckFree merger is proceeding smoothly -- reflecting, in part, the fact that Fiserv, the product of the combination of a subsidiary of Midland Bank of Milwaukee and an affiliate of Freedom Savings and Loan many years ago, has done scores of these deals.
Yes, Fiserv is vulnerable if a sustained recession forces banks to curtail tech spending drastically, or if some of the expected synergies with CheckFree don't materialize.
But Yabuki argues that analysts and investors are unfairly painting Fiserv "with the same brush that's used on the banking system. Their basic idea," the CEO says, "is that the banks, our clients, would stop spending on technology in a slowdown. But they forget that the kind of processes we offer are really nondiscretionary."
Fiserv, which has bought back more than 36 million of its shares over the last three years, does have Wall Street fans. "This is a stock that could easily benefit from both earnings and multiple expansion, even in a slow economy," says Clark Shields, business-services analyst for T. Rowe Price, a buyer of the stock. He thinks the shares could rise more than 15, to north of 65, in the next 12 months. That kind of near-term gain isn't in the cards for most banks.
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