With Goldleaf, Jack Henry Beefs up Its Remote-Capture Business

Bank technology provider Jack Henry & Associates Inc. on Monday said it would buy Goldleaf Financial Solutions Inc. in a $19.1 million cash deal that will bring two of the leading deployers of remote deposit capture services under one roof. The pending acquisition will be Monett, Mo.-based Jack Henry's 17th since 2003, according to Financial Technology Partners LP, which advised Jack Henry on the deal. The news comes against a backdrop of rapid consolidation among bank vendors and processors, most notably the pending buyout of Metavante Technologies Inc. by Fidelity National Information Services Inc. (Digital Transactions News, April 1). Both of those companies are far larger than either Jack Henry or Goldleaf, which on Monday reported revenues of $16.3 million for the second quarter. Norcross, Ga.-based Goldleaf provides integrated technology and payment-processing services to 3,500 financial institutions worldwide and, despite its small size, leads in the number of remote deposit capture deployments, according to industry researchers. Early last year it bought Alogent Corp., a prominent provider of remote deposit capture software, for $42.5 million (Digital Transactions News, Jan. 17, 2008). More than 800 banks and credit unions use Goldleaf's corporate remote deposit capture service, and it has more than 44,000 corporate and business end users, a spokesperson says. Jack Henry, meanwhile, serves 8,800 domestic customers, most of them small financial institutions, and itself is a major remote deposit capture provider with a growing number of deployments through independent sales organizations. The company will have revenues of $738 million this year, Financial Technology Advisors predicts, nine times Goldleaf's estimated $78 million. But the Fidelity/Metavante combo creates a significant top-tier rival to leading bank processor Fiserv Inc. and puts the smaller core banking processors on notice that they may have to build bulk to survive, according to Aite senior analyst Nancy Atkinson. On the positive side, community banks that haven't been hurt badly by the recession are looking to upgrade their technology as big banks grab headlines for mobile banking and other flashy new products. “Some of them have some money that they can spend … to become more competitive,” she says. For Goldleaf, the Jack Henry buyout gives a big reward to shareholders?Jack Henry's 98-cent-per-share offer price represents a 40% premium over the company's 70-cent closing price on Aug. 14?and the prospect of more financial stability that could help grow its business. Goldleaf's second-quarter revenues were down 20% from $20.5 million a year earlier, and the company reported an operating loss of $1 million. Goldleaf said the group of lenders that provide its primary credit facility had granted it a one-quarter waiver of default resulting from the company's non-compliance with terms calling for it to maintain a certain debt to pre-tax earnings ratio. The company also announced cost-cutting measures, including a reduction of 25 positions. “Goldleaf was in some financial trouble, Jack Henry was looking to expand,” says Atkinson. She adds that Goldleaf will bring some complementary other products to Jack Henry such as its Lending Network receivables-management service. Lynn Boggs, Goldleaf's chief executive, said in a statement that, “In addition to providing a substantial premium for our shareholders over the current trading price, the scale of this agreement will have a positive effect on the entire industry by providing thousands of financial institutions with access to more efficient, profitable, and effective solutions. Our customers will benefit from an expanded product offering and continued commitment to superior service.” In his own statement, Jack Henry chief executive Jack Prim said, “The combined company will offer one of the most comprehensive product and service offerings available today, will be positioned to leverage a broader market presence and capitalize on increased market potential, and will have a stronger competitive position.” Goldleaf will become a wholly owned Jack Henry subsidiary upon the deal's closing, which Jack Henry expects no later than early in the fourth quarter. Financial Technology Advisors put the so-called enterprise value of the deal at $60.5 million when various Goldleaf debts of $41.4 million are included, making for a 10% premium over Friday's share price.