GTCR Steps Into Bidding War For Fundtech Deal

Target: Fundtech Ltd

Price: $363.7 million

Sponsor: GTCR

Seller: Public shareholders

Financial Adviser: Moelis & Company, RBC Capital Markets and BMO Capital Markets (GTCR); Citi (Fundtech)

Legal Counsel: Skadden, Arps, Slate, Meagher & Flom LLP and Herzog, Fox & Neeman (GTCR); Kirkland & Ellis LLP, Kramer Levin Naftalis & Frankel LLP and Meitar Liquornik Geva & Leshem Brandwein (Fundtech)

When the payment technology company Fundtech Ltd accepted a $363.7 million take-private offer from Chicago buyout shop GTCR, it disrupted a complicated bidding war among a group of bank technology vendors.

The new deal breaks up an existing agreement by Fundtech to sell itself to S1 Corp., an Atlanta-based vendor of online banking software and related technology. Fundtech said GTCR had agreed to pay S1 an $11.9 million termination fee.

S1 conceded defeat Sept. 16, saying it would not make a counter-offer. For its part, S1 is the target of a hostile bid by ACI Worldwide, Fundtech’s larger rival for wire transfer software, which has made an offer to S1’s public shareholders and was urging them to vote against S1’s “merger of equals” with Fundtech. S1 has urged its shareholders to reject the ACI tender offer.

GTCR said it would pay Fundtech’s public shareholders $23.33 a share in cash out of its GTCR Fund X, which closed this year with $3.25 billion of committed capital.

Based on 15.6 million shares outstanding as at April 15, GTCR’s offer values the payments processing service provider at $363.7 million, according to sister news service Reuters.

Fundtech said its board decided the GTCR bid constituted a “superior offer,” even though the Associated Press calculated that the S1 bid had been worth $320 million at the time the deal was announced or $373.4 million based on S1’s share price on the day before GTCR announced its bid.

George Ravich, an executive vice president at Fundtech and its chief marketing officer, said the board had found GTCR’s bid financially superior, and the company’s 58 percent owner—Tel Aviv holding company Clal Industries and Investments Ltd—had agreed to support the deal.

But the financial difference was not the most appropriate way to think about the deal, Ravich told Buyouts. “There was a strategy behind this. The board of directors wanted to do the best job for the company and not just the shareholders.”

Collin Roche, a principal at GTCR, told Buyouts that his firm had been talking to Fundtech before S1 announced its deal and that had continued to press its case. He acknowledged that the series of competing bids from the various companies had not made dealmaking any easier.

“It created a lot of complexity to the situation that we had to navigate through.” he said. “This wasn’t just winning out on price. The deal makes a tremendous amount of sense.”

GTCR plans to combine Fundtech with another payment processor, BankServ of San Francisco, which the firm acquired last August. The two companies operate in complementary areas, Roche said, with Fundtech largely selling its software in the United States and internationally for banks to install on their own computers, while BankServ’s central offering is a hosted payment service that is used mainly by regional and community banks in this country.

“This is an important theme for us and something we want to get strongly invested behind,” Roche said.

The firm expects to make additional acquisitions for the combined company, which is to be named Fundtech and be based in the company’s existing U.S. headquarters in Jersey City, N.J. Current Fundtech CEO Reuven Ben Menachem would become CEO of the new company. BankServ CEO David Kvederis would become a member of the board.

Royal Bank of Canada, BMO Capital Markets and Newstone Capital Partners agreed to provide debt financing for the transaction.

Skadden, Arps, Slate, Meagher & Flom LLP and Herzog, Fox & Neeman served as legal counsel to GTCR. Moelis & Company, RBC Capital Markets and BMO Capital Markets served as financial advisors to GTCR.