By Snagging Official Payments, ACI Bolsters Client Base, Recurring Revenue

ACI Worldwide Inc.’s $109 million deal to buy Official Payments Holdings Inc. is a bid to grow its transaction volume and pairs well with its January purchase of Online Resources Corp., analysts suggest.

Official Payments is a processor that specializes in online payments to government entities. ACI Worldwide is paying $8.35 per share for the company, but not all are pleased with the deal, which was announced Monday. At least 11 law firms are soliciting shareholders alleging that the sale price is not good enough.

ACI says the acquisition expands its portfolio into sectors such as government, municipal utilities, higher-education institutions, and charities. Official Payments has more than 3,000 customers and processes approximately 20 million payments and more than $9 billion in volume annually. ACI Worldwide counted more than 2,600 customers prior to the Official Payments deal.

Traditionally a software provider, ACI Worldwide is trying to build transaction volume and its associated recurring revenue, says Nancy Atkinson, a senior analyst at consulting firm Aite Group LLC. “By buying a payments organization, they’re now moving into actually providing a service directly rather than just providing the underlying software for the banks to use,” Atkinson says. Executives with ACI and Official Payments did not return calls for comment.

The move is a vast expansion of ACI Worldwide’s customer base, says George Sutton, senior research analyst at investment-banking firm Craig-Hallum Capital Group LLC, especially when viewed in conjunction with the January purchase of Online Resources Corp., an electronic bill-payment and -presentment technology provider.

“ACI has bolstered its recurring revenue stream with its two most recent acquisitions, with 90% of Online Resources and over 95% of Official Payments revenue recurring,” Sutton writes in a research note. Sutton forecasts that 76% of ACI’s revenue will be recurring following the Official Payments deal.

Buying Official Payments could help ACI Worldwide as it prepares to launch its Universal Payments Platform later this year, Sutton notes. The system would enable all payments to be handled on a single platform, Sutton writes. “Now, the biller-direct market, which still sits at a low single-digit market penetration, appears ripe for a larger player with distribution power and scale to really accelerate that market’s development,” Sutton says.

Sutton also notes that Philip G. Heasley, ACI Worldwide’s president and chief executive, had served on the board of Tier Technologies Inc., the Official Payments parent company, from 2008 until earlier this year, yielding him an “intimate knowledge of both the company and the opportunity,” Sutton says.

The deal is expected to close in the fourth quarter.