Acquiring Giant Vantiv Agrees to Buy Litle & Co. for $361 Million

In a move that will greatly expand its business in card-not-present transaction processing, merchant processor Vantiv Inc. announced on Wednesday that it has agreed to acquire Lowell, Mass.-based Litle & Co. for $361 million in cash. The transaction is expected to close later this year and will result in 11-year-old Litle becoming a subsidiary of Cincinnati-based Vantiv, though it will retain its offices in Lowell.

Investor enthusiasm for the deal, which was announced early in the day, has been tepid so far. By mid-day, shares in Vantiv were down 40 cents from their $20.41 open. Vantiv has traded on the New York Stock Exchange since its initial public offering in March.

Litle, a specialist in processing for Internet retailers and direct marketers, will bring card-not-present processing expertise to Vantiv and significantly build up its presence in this segment of merchant acquiring. While Vantiv is a major processor for physical merchants, serving more than 400,000 locations, just 1.2% of its $564 million in merchant revenue came from card-not-present processing in 2011, according to company figures. With $285 million in 2011 revenue, Litle would expand Vantiv’s stake in this business 40-fold. “That makes Vantiv a player in the online and marketing sector,” says Steve Mott, a payments consultant with BetterBuyDesign, Stamford, Conn.

The deal would also place Vantiv squarely in the middle of a market experiencing much faster growth than its bread-and-butter business acquiring for point-of-sale merchants. Vantiv processed 9.6 billion merchant transactions in 2011, up 13% from 2010. By contrast, e-commerce spending is expected to climb 45% in 2013.

Charles Drucker, Vantiv’s president and chief executive, tells Digital Transactions News Vantiv will identify clients that have Web stores that process elsewhere and introduce Litle to them. “Immediately our sales force will be able to sell the Litle product,” he says. “That’s the first stage.” Vantiv also plans to make Litle’s Lowell headquarters a “product innovation lab,” Drucker says, to take advantage of the company’s new-product expertise.

Vantiv may also be able to tap into Litle’s ability to reduce merchant attrition. “They have a pretty fanatically loyal customer base,” says Mott. “Once a customer gets up and running with them, they tend to stay with them.” Prominent Litle clients include family-tree research site Ancestry.com, clothing retailer Bluefly.com, Internet registrar GoDaddy, identity-security firm LifeLock, retailer Overstock.com, and Restaurant.com.

Litle boasts a long and distinguished heritage in processing payments for catalogers and e-commerce merchants. Company founder Tim Litle, credited with introducing the idea of installment billing on credit cards as well as the three-digit security code found on the backs of general-purpose cards, started the first Litle & Co. in 1986 and sold it to First USA for $80 million nine years later. First USA, which was eventually acquired by JPMorgan Chase & Co., changed the name of the company to Paymentech. Litle, who had retained the rights to his name, founded the second Litle & Co. in 2001. His son, Tom, took over as chief executive a few years later.

Speaking to Digital Transactions News, Tom Litle says the size and reach of the Vantiv organization will bring advantages to Litle & Co. “By being part of a scaled organization in payments, the infrastructure we have to provide care and feeding for becomes a smaller part of our organization,” he says. That frees up resources for merchant services, he adds. The bigger scale also will help Litle attract new partners. As things stand, “I can’t create enough revenue for them quickly enough because we’re small,” Litle says.

Faster application development could prove crucial for both companies as the pace of change in electronic payments increases and as non-payment media such as offers and rewards become a more prominent part of the transaction. “As the lines between channels blur, there’s going to be a premium on making payments and other parts of the transaction as transparent as possible,” Mott notes. The great benefit of such transparency, he says, is that “you really reduce the transaction-abandonment rate.”

Fifth Third Bancorp owned Vantiv, then known as Fifth Third Processing Solutions, until 2009, when it spun off a 51% stake in the processor to private-equity firm Advent International. The company changed its name to Vantiv in June 2011 and began trading publicly nine months later. Fifth Third Bancorp is one of two sponsors for Litle, allowing it to enter transactions in the Visa and MasterCard networks. The other is Wells Fargo & Co.

Vantiv executives are expected to provide more information about the acquisition during their third-quarter earnings conference call Thursday at 8:00 a.m. Eastern time. The call can be accessed through Vantiv’s investor-relations Web site.