Fundtech: Creating Synergies And Leveraging Innovation To Capture A Market
April 12, 2016
GTCR has been a leading investor in the payments industry for more than two decades, and the firm has invested behind secular growth themes in a number of different payment industry sub-segments.
In 2010, the firm was pursuing investment opportunities in payment technology, with a focus on business-to-business and cross-border payments. GTCR determined that this area of the payments universe was underserved by existing technology and services providers, and the growth in business-to-business and cross border payments volumes presented an opportunity to serve an attractive and rapidly growing marketplace.
In the course of the firm’s proactive efforts, GTCR identified and pursued an opportunity to recapitalize Bankserv, a growing SAAS-based provider of payment software and services to small and medium banks, based in Nevada. Initial attempts to consummate a transaction were unsuccessful, but, with further dialogue, GTCR was able to come to an agreement with Bankserv’s Founder and CEO in mid-2011. GTCR expected to invest in Bankserv to foster sustained organic growth and to pursue acquisitions that would add scale and breadth of offerings. As GTCR completed its work to diligence the business and document the transaction, the firm learned that a larger competitor of Bankserv might be willing to entertain acquisition proposals. Fundtech Ltd. was a publicly traded Israeli software business with a strong presence among global banks. It also had substantial overlap with Bankserv’s SAAS-based offerings in the U.S. GTCR believed that the two complementary businesses, if combined in a transformative merger, would have attractive scale and market position attributes, and the combined business would be better positioned to innovate as the leader in this attractive market. GTCR established dialogue with Fundtech’s founder and CEO, Reuven Ben Menachem, about a prospective combination of Fundtech and Bankserv.
The transaction with Fundtech entailed substantial complexity, as GTCR worked against a competing public company that sought to acquire Fundtech. Ultimately, GTCR was able to acquire Fundtech at a substantial premium due to the synergies it could create through the combination with Bankserv. The combined business kept the Fundtech name, with headquarters relocated to New York City. The company operated on six continents with more than 1,500 employees and a strong, global client base.
GTCR’s investment thesis was to transform Fundtech into the undisputed leader in its segment, and GTCR anticipated funding further innovation to extend the company’s competitive lead over other industry players. GTCR underwrote significant re-development of all of the company’s applications and the introduction of new products in demand by customers. GTCR also pursued substantial investment in internal systems and processes to drive greater efficiency, improve quality and enhance the scalability of the business. A number of management changes were made in the first year of ownership. Mr. Ben Menachem assumed the CEO role across the combined business, and President Ed Ho was recruited to add management depth and experience at operating larger enterprises. Strong, experienced managers were hired and promoted into a number of other key roles.
Ultimately, the transformation at Fundtech was successful in enhancing the strategic position of the business. Fundtech’s scale allowed the company to invest a greater amount in development than smaller competitors, and Fundtech enhanced its lead in product capabilities and product line breadth. Sales execution improved with further investments in this area and an improved focus on customer needs. The company experienced an acceleration in revenue growth, to the mid-teens, and profitability grew faster than revenue as the company benefitted from efficiencies and scalable processes and systems.
In early 2015, Fundtech was sold for $1.25 billion to a leading bank technology provider, DH Corporation. The sale price reflected Fundtech’s strong growth and profitability as well as its leadership position in a key, highly strategic segment of the payments industry.