by Thomas Rasmussan
With reports indicating that IBM (NYSE:IBM) has pulled its multibillion-dollar offer for Sun Microsystems (JAVA), the second-largest deal of the year so far is the $2.9bn all-equity purchase of Metavante (MV) by Fidelity National Information Services (NYSE:FIS) announced in early April. (Yesterday, Express Scripts (NASDAQ:ESRX) announced that it will fork over $4.7bn for WellPoint’s (WLP) NextRx subsidiaries.)
In fact, we recently noted that the first quarter closed without a single transaction worth more than $1bn. It was the first time a quarter passed without a 10-digit deal since we began keeping records in January 2002. This transaction consolidates two active acquirers. Metavante and FIS have together inked more than 30 purchases over the past five years: FIS has completed 18 deals worth north of $7bn (excluding this pickup), while Metavante has closed 15 to the tune of about $1.4bn.
The combined FIS and Metavante will have revenue of $5.1bn, about $300m in cash after the transaction closes, and free cash flow of about $700m. However, though the management of the new company outlined its healthy cash flow as means for making further acquisitions, we don’t expect them to step immediately back into the market as the giants work on integrating the blockbuster deal. (We would note that both FIS and Metavante were out of the market in 2008.)
Instead, we expect near-term consolidation to likely come from the firm’s two remaining large competitors Fiserv (NASDAQ:FISV) and First Data Corp, which Kohlberg Kravis Roberts took private for $30bn two years ago. Additionally, we could see Oracle (NASDAQ:ORCL) and IBM using their vast cash reserves to buy their way into this sector. In fact, FIS and Metavante said in their conference call discussing their planned transaction that one of the reasons they were getting together was to stave off the expected competition from Oracle and Big Blue.
So who might be of interest to any of these buyers? We suspect smaller players such as Jack Henry & Associates (NASDAQ:JKHY) or even payments competitors TeleCommunication Systems and S1 Corp (NASDAQ:SONE) could well become targets.
Financial IT M&A by the now three largest buyers since 2002
Source: The 451 M&A KnowledgeBase