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Total System Acquires ProPay

Zacks Equity Research

Yesterday, Total System Services Inc. (TSS) declared the closure of the ProPay acquisition. The financial details of the deal were not disclosed.

Utah-based ProPay will now operate as a wholly-owned subsidiary of Total System. The company will function under the leadership of Mark Pyke, who is currently the president of the group company’s Merchant Services segment.

Prior to the acquisition, ProPay was a privately-held payment service provider. The company, with over 15 years of experience in the financial services industry, offers user-friendly, well-protected and reasonably priced payment solutions to various kinds of organizations. These range from home-based entrepreneurs to high net worth corporations.

Moreover, the company offers customized processes such as ProPay JAK, which delivers secure mobile payments. Its payment security solutions are specifically designed to minimize the risk of data breach of the clients’ sensitive payment data.

ProPay processes over 250,000 small merchants to tap the market of direct selling entities. This feature, in turn, is expected to help Total System expand its merchant acquiring services within the small and micro-merchants’ market. Direct penetration into these large base-level markets, primarily through the rapidly growing mobile banking services, is not only going to enhance Total System’s market position but also help achieve its long-term target of being among the top 10 acquirers in the world.

Total System continues to develop and enhance its processing solutions by developing solutions and strategic acquisitions to expand its service offerings. In April 2010, the company acquired 51% ownership of a newly formed company named First National Merchant Solutions LLC (“FNMS”) for approximately $150.5 million. FNMS was formed under the company’s joint venture with First National Bank of Omaha (:FNBO) in Omaha, Nebraska.

In January 2011, Total System had acquired the remaining 49% of FMNS for $169.6 million. Following the completion of the acquisition, FNMS was renamed TSYS Merchant Solutions (TMS). Additionally, in May 2011, the company acquired TermNet Merchant Services. Later, in October 2011, Total System announced the merchant portfolio acquisition of Florida-based Vanguard Payment Systems Inc.

Total System’s risk-free balance sheet along with a modest cash position and cash flow generation provide scope for capital deployment through share repurchases and acquisitions. We believe that the new acquisitions and joint venture deals should boost the growth of the company.

Total System currently carries a Zacks #2 Rank (Buy). We are maintaining a long-term ‘Neutral’ recommendation on the stock. Total System’s peer in the payment processing business – Heartland Payment Systems Inc. (HPY) – carries a Zacks #1 Rank (Strong Buy).

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