Private-Equity Player GTCR Swoops in to Snatch Fundtech from S1’s Grasp

In yet another twist in the ongoing corporate drama involving payments-software firms S1 Corp., Fundtech Ltd., and ACI Worldwide Inc., news emerged early on Thursday that Fundtech is spurning S1 in favor of what it views as a better offer from GTCR, a Chicago-based private-equity firm with a history of investments in payments-related companies.

Fundtech, an Israeli company with U.S. headquarters in Jersey City, N.J., has notified S1 of GTCR’s $400 million cash offer, which contrasts with an all-stock merger deal valued at $700 million announced in June by S1 and Fundtech. S1, which under the terms of its deal with Fundtech has five business days to top GTCR’s proposal, issued a statement saying it is “reviewing its options.” Norcross, Ga.-based S1 had planned to hold a shareholders’ meeting on Oct. 13 to vote on the proposed merger.

ACI, an Elkhorn, Neb.-based vendor of switching software for debit networks and retailers, refused to comment on Thursday’s development. ACI launched a hostile-takeover campaign for S1, whose products largely compete with its own, just weeks after S1 announced its offer for Fundtech and has been lobbying S1’s shareholders to reject the Fundtech merger.

GTCR intends to combine Fundtech with Bankserv, a Las Vegas, Nev.-based company it acquired last month for an undisclosed price. The combined company will be called Fundtech Inc. and will be based in Jersey City, with Fundtech founder and chief executive Reuven Ben Menachem serving as chief executive. David Kvederis, who founded Bankserv 15 years ago, will take a seat on the board. GTCR is noted in the electronic-payments business for previous stakes it has taken in such companies as terminal maker VeriFone Inc. and processor TransFirst Holdings Inc. It no longer holds an interest in these companies.

GTCR’s decision to buy Fundtech out from under S1 came as the latest surprise in what has been a deal-making story full of twists and turns. “I was a bit shocked,” says Nancy Atkinson, a senior analyst at Boston-based researcher Aite Group LLC. While S1 will not comment beyond its statement, Atkinson believes it will have a hard time coming up with a better offer for Fundtech that it can both finance and justify to its shareholders. “Five days is not a lot of time,” she notes. That could leave S1 vulnerable to ACI’s offer unless it can find another suitor in the meantime, she says. “My sense is S1 really does not want to be acquired by ACI,” Atkinson says.

Indeed ACI has carried on a determined campaign to acquire its rival despite equally determined opposition from S1’s management. That campaign heated up late this summer when ACI, hoping to scuttle the proposed Fundtech deal, mailed proxy cards to S1 shareholders so they could vote against the merger. It also sweetened its original offer price in a bid to overcome resistance from S1’s board.

GTCR’s proposal to merge Bankserv with Fundtech would combine two companies with similar product lines, contrasting with the S1-Fundtech proposal. “I think there is a lot more overlap [between Bankserv and Fundtech] than there was between S1 and Fundtech,” says Atkinson. Fundtech specializes in wholesale payments for banks, and a combination with S1 would have brought it for the first time into the consumer-payments market. While Bankserv processes consumer check and card transactions, its products also handle wire transfers and it maintains a SWIFT service bureau, lines of business also offered by Fundtech, Atkinson notes. SWIFT is a global network that handles financial data and messaging among financial institutions and businesses.