Total System Services Inc. executives believe the company is poised to evolve into a leading payment provider for small and medium-sized U.S. businesses with its deal for payment technology company Cayan.
Total System Services is acquiring Cayan in an all-cash deal valued at about $1.05 billion. Expected to close in the first quarter of 2018, the potential acquisition could begin contributing to the company's net revenue growth and adjusted EPS in the first full year once the deal closes. The transaction is also expected to provide the company with a cash tax benefit of about $100 million under current tax law.
Chairman, President and CEO M. Troy Woods said Cayan, a portfolio company of Parthenon Capital Partners, should be viewed as a bigger piece in the company's larger M&A strategy to help develop its merchant business.
"Coupled with [Total System Services'] already significant scale and distribution capabilities, the addition of Cayan's unified commerce solutions puts us in a stronger competitive position that jointly offers a broad set of value-added products and services to our partners and merchants," Woods said during a conference call to discuss the deal.
Total System Services has been looking to develop the merchant business through M&A for some time. The deal for Cayan comes about 20 months after the company completed its largest financial acquisition in TransFirst Holdings Corp. a move also viewed by executives to solidify the merchant business.
If completed, the acquisition of Cayan, which has been approved by Total System Services' board, would rank as the company's third-largest financial acquisition in the last decade, according to S&P Global Market Intelligence data.
Woods hinted at continuing to expand the merchant segment at Citi's Financial Technology Conference on Nov. 7, saying that the segment could soon become the company's largest. At the time, Woods said the merchant segment accounts for about a third of the company's total business.
In the third quarter, the company's merchant solutions segment recorded $48.6 million in adjusted operating income, which was up 18.9% from $40.9 million a year earlier.
Total System Services sees Cayan as a means for growth down the line. Total System Services President of merchant solutions Philip McHugh said during the call that Cayan's stake in the pharmacy and specialty retail spaces will allow for potential expansion from Total System Services' legacy verticals of health, salon and wellness and others.