Fidelity National Information Services Inc. (FIS) confirmed its bid for the U.K. based financial software company, Misys. According to analysts, the deal is valued at approximately $2.4 billion.
Misys provides financial software to banks, fund managers and traders and has a predominantly strong operating base in eastern Europe, Africa, the Middle East and parts of Asia.
Moreover, Misys’ services cater to more than 500 banks globally, which includes the world’s top 50 banks, and Fidelity will perhaps enjoy the former’s existing customer base to sell its ancillary products. The acquisition would enable Fidelity to expand its international base and will also provide it to tap into an existing market to cross sell its products.
Fidelity is expanding its base in the international markets through acquisitions. The Misys acquisition, if successful, would be Fidelity’s second largest acquisition after the acquisition of Metavante Technologies, which was bought for $2.94 billion in October 2009.
Last year, Fidelity bought Capco, a privately held Belgium-based company, for $292 million in cash, seeking to include a financial services consulting business to its product portfolio.
Looking back at the recently concluded quarter, revenues from International operations totaled $268.1 million, up 48.6% year over year, and recorded the highest growth trajectory among all of its segmental revenues. The strong results were driven by higher volumes from the Brazil card processing operation, growth in professional services, higher license revenue and the addition of Capco’s international operations.
Thus, the endeavor to acquire Misys makes sense for Fidelity as the latter would acquire a strong set of products that could augment its securities and investments portfolio.
Recommendation
We maintain our Neutral rating on a long-term basis (for the next 6 to 12 months), primarily due to increasing debt and intense competition from Fiserv Inc. (FISV), International Business Machines Corp. (IBM), Accenture Plc (ACN), Alliance Data Systems (ADS) and MasterCard Incorporated (MA) and Visa Inc. (V).
Increasing consolidation in the banking sector, a challenging environment for the Payments Solutions business and an uncertain regulatory environment are the primary business headwinds in our view.
However, Fidelity’s commanding position in the financial services market, its increasing international exposure, recurring revenue model, cost synergies from acquisitions and a loyal customer base will drive growth over the long term.
Currently, Fidelity has a Zacks #3 Rank, which implies a short-term Hold rating (for the next 1-3 months).
