Electronic payment processor Fidelity National Information Services Inc. (FIS) announced the acquisition of Compliance Coach Inc., a software company. Financial terms of the acquisition were not disclosed. However, the acquisition is expected to close within 30 days.
Fidelity National is a leading provider of banking and payments technology solutions, processing services and information-based services to the financial services industry and government organizations. Compliance Coach provides risk assessment software, e-learning and additional tools to help users adhere to applicable laws and regulations.
Management at Fidelity National points out that the acquisition of Compliance Coach will expand its compliance strategy and position it as a leading provider of regulatory compliance services. Fidelity currently offers ancillary services such as the branch automation, back office support systems and compliance support to banks, credit unions, automotive financial companies, commercial lenders, independent community and savings institutions.
FIS will acquire Compliance Coach’s flagship products such as Regulatory University, Compliance Risk Indicator (CRI) and Compliance Pal. The addition of Compliance will enable the company to offer a broader range of compliance services such as integrated training, risk assessments, monitoring, reporting and advice.
Although Fidelity has made many significant acquisitions in the past, expanding its product capabilities and improving its ability to penetrate international markets, the acquisition of Compliance Coach will complement its risk management services.
Fidelity’s first quarter 2010 earnings beat the Zacks Consensus Estimate of 39 cents by 2 cents. Earnings on a non-GAAP basis from continuing operations came in at 41 cents per share, up 36.7% from 30 cents per share in the year-ago period. This was above the company’s guided range of 37 to 40 cents per share.
Revenue and earnings were better than expectations, boosted by higher software and professional services sales, strong transaction growth, prudent cost management and impressive free cash flow.
Although we believe that the company has the potential to grow at a healthy rate over the next few years, a declining market for check services and a slow recovery in the mortgage market are areas of concern.
Moreover, given its acquisition-driven growth strategy, we expect the stock to trade at a discount to its peer group. We believe that the company’s continuous acquisitions will add to its growth story by delivering higher synergies and a broad customer base.
We maintain our Neutral rating on the stock.
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