Big Man on Campus: Heartland Pays $375 Million for Higher-Education Payments Company TouchNet

Heartland Payment Systems Inc. is paying $375 million to expand its position as a higher education payments provider.

The Princeton, N.J.-based processor announced today it bought Lenexa, Kansas-based TouchNet Information Systems Inc. Heartland says this is its highest-priced acquisition to date.

TouchNet provides a variety of payment services to more than 600 higher-education clients, including a payment gateway, mobile point-of-sale, and transaction processing for credit and debit cards, ATM, online, automated clearing house, and foreign exchange services.

Clients can use TouchNet to process and manage student tuition, alumni donations, and campus events, Heartland says.

In its most recent earnings report, for the first quarter ended March 31, Heartland says its campus solutions business, for higher education institutions, had revenues of $13.3 million, a 15.7% increase from $11.5 million in the same quarter a year ago. Heartland expects TouchNet to add more than $60 million to its fiscal 2015 revenue.

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TouchNet’s attractiveness to Heartland stems, in part, from its U.commerce service that provides a single source to view all of the transactions made on a campus, Michael Lawler, president of Heartland’s strategic markets group, tells Digital Transactions News. TouchNet has integrations with other companies that serve bookstores, events, housing, ticketing and other campus activities, he says. “We saw they’re doing all that, yet they’re really outsourcing, for the most part, the payment processing to a variety of third parties,” Lawler says. That means university and college treasurers have two sets of data to review, he says.

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The first job following the deal is to get Heartland certified as a TouchNet payment provider, he says. That will enable TouchNet to combine transaction data with actual payment data, Lawler says. Approximately $16 billion in payments flowed through TouchNet’s system in 2013, but TouchNet processed less than $1 billion of that. Most of it went to third-party payment processors, Lawler says. Heartland intends to make the pitch to TouchNet clients to switch their payment processor to it, he says. TouchNet’s existing payment processor relationships remain in place, Lawler says.

Generally, payments analysts say Heartland’s move is a smart one.

“This is in line with the specialization and domination of verticals that should inspire merchant acquirers,” Adil Moussa, principal of consulting firm Adil Consulting, tells Digital Transactions News. “By acquiring TouchNet, Heartland Payment Systems has positioned itself to dominate a vertical in the payment industry because of the specific nature of what TouchNet provides.”

Four years ago Heartland restructured its sales force to focus on verticals, including restaurants and higher education.

This emphasis on higher education makes sense because Heartland will be able to develop services that add value for that specific marketplace and help differentiate it from a more general provider, says Nancy Atkinson, senior analyst at Boston-based Aite Group LLC. “It’s a smart move for Heartland,” Atkinson says.

TouchNet is a good add on for Heartland for a number of reasons, Wayne Johnson, transaction processing analyst at Raymond James & Associates Inc., tells Digital Transactions News. Because TouchNet has so many higher education clients—serving more than 6 million students— the acquisition gives Heartland a way to add scale to its business, he says. “The key take away is the efficiencies they can bring to bear on the TouchNet customer base, plus the cross-sell opportunities with their existing university business, plus continued revenue diversification away from traditional retail credit card processing,” Johnsons says. “All those things are positive.”

Investors liked the news, too. Heartland’s stock, in mid-day trading at $49.14 per share, was up 8.2% from Tuesday’s close of $45.40.