D+H acquire Fundtech for $1.25 billion

Financial technology company, DH Corporation (D+H) have acquired Fundtech, a leading business that facilitates domestic and global payments through transaction banking software and provides merchant devices, financial messaging and corporate cash management services.

The acquisition, which cost $1.25bn, is part of D+H’s plan to expand and work with global financial institutions and large US banks. Reuven Ben Menachem, Fundtech’s founder and CEO said that “Fundtech joining D+H will create new opportunities for our employees and clients alike.

The merger is expected to be approved by the second quarter of fiscal 2015 and New York-based, Fundtech’s connections mean that D+H’s client base will now include 190 of the top 300 US banks and 40 of the world’s top 50 banks.

I’m very proud of the company and culture that we have built and believe that D+H’s client-centric approach and FinTech expertise represent a great strategic fit for us,” said Ben Menachem.

Due to the recent rapid increase of banks using payment systems, D+H CEO, Gerrard Schmid, believes that this acquisition will encourage the organisation to keep up with technology trends and remain current.

Schmid stated that payments are “massively important to banks these days and Fundtech is a market leader in payment hubs.”

The takeover will be funded by an equity issuance which will raise $494 million and a convertible debt offering, co-led by CIBC, RBC Capital Markets and Scotiabank. This offering will generate around $150 million and if banks utilise the over-allotment options the proceeds could rise to $750 million.

Past deals for D+H include the 2003 acquisition of Fundtech’s rival Harland Financial Solutions for $1.2 billion, in order to broaden branch automation and commercial lending primarily for community banks and credit unions, as well as expand on online and mobile banking.

However, in 2001 S1 Corporation attempted to merge with Fundtech which ended up being overrun by ACI Worldwide. This led to Fundtech backing out and establishing a deal with GTCR, a Chicago based private equity firm.

After closing the deal with Fundtech, D+H will attempt to boost earnings within 12 months and Fundtech’s connections with the US market will lead to good visibility on its revenue flows. Alongside these business goals, their focus for the next 18 months will be on organic growth and to reduce debt.

This acquisition presents a market opportunity as the technology surrounding global payments is a hot topic in the fintech industry at the moment. Also, a merger between two leading companies such as Fundtech and D+H will ensure that with a combination of banking domain knowledge, proven technology solutions and trusted client relationships, the resulting D+H company will be a strong competitor for similar businesses in this sector.