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D+H Announces Agreement to Acquire Fundtech, a Leading Global Payments and Transaction Banking Solutions Provider

DH Corporation (“D+H”) (TSX: DH) today announced that it has entered into a definitive agreement to acquire Fundtech, a leading provider of global payments solutions to banks worldwide, for cash consideration of US$1.25 billion (the “Acquisition”).

“The complexity of today’s global payments infrastructure, proliferation of channels, and an increasing desire for real-time payments is driving demand for payment solutions that allow banks to streamline payment processing while providing a more sophisticated and comprehensive view of liquidity management across various currencies and geographies,” said D+H chief executive officer Gerrard Schmid. “The acquisition of Fundtech puts D+H at the forefront of these trends globally, providing us with a market-leading software platform with established scale in mission-critical payment technology. It also delivers capabilities that are relevant to our existing customer base in Canada and the U.S. while making D+H more relevant to global financial institutions and large U.S. banks.”

Overview of Fundtech

Headquartered in New York City, Fundtech is a leading provider of financial technology to banks and corporations of all sizes in the Americas, EMEA, and APAC regions with approximately 1,500 employees and 19 offices worldwide, including development centers in the United States, India, Israel, Switzerland and the UK. Fundtech’s solutions are mission-critical to the day-to-day operations of banks and corporate clients. Fundtech offers a comprehensive line of transaction banking solutions including global and domestic payments solutions, financial messaging, corporate cash and liquidity management and merchant services. Fundtech has approximately 1,200 clients, including global money center banks, mid-sized banks and credit unions, non-bank financial institutions, central banks and corporates. Fundtech was founded in 1993 and acquired by Chicago-based private equity firm GTCR in 2011. Fundtech’s 2014 Adjusted revenue was US$263 million(1) ($291 million) and Adjusted EBITDA(1) was US$68 million  ($75 million), representing growth of 9% and 15% over 2013, respectively.

“I’m very proud of the company and culture that we have built and believe that D+H’s client-centric approach and FinTech expertise represent a great strategic fit for us,” said Reuven Ben Menachem, founder and chief executive officer of Fundtech. “Fundtech joining D+H will create new opportunities for our employees and clients alike.” 

Financially, the combination of D+H and Fundtech would result in:

Pro forma 2014 Adjusted revenues(1) of approximately $1.45 billion(2);
Pro forma 2014 Adjusted EBITDA(1) of $428 million(2) with 30% Adjusted EBITDA(1) margin, and Adjusted net income(1) of $216 million(2);
Attractive medium-term synergies through cross-selling opportunities and cost savings; and
Strong combined cash flow that will enable deleveraging, support dividend payments, and fund investment for future growth. D+H is targeting a Debt to EBITDA ratio(1) of less than 2.5x by the end of 2016.

Market Opportunity

D+H’s management believes that the estimated annual IT spend by banks for all of the markets in which Fundtech participates is approximately US$5 to US$6 billion. The market opportunity for global payments technologies is among the most attractive in the FinTech industry today. Market penetration of these solutions is still in the early stages which creates significant opportunities for companies like a combined Fundtech and D+H that have the scale, proven technology solutions, strong banking domain knowledge and trusted client relationships to compete in this market. 

“We have made significant investments in our platforms over the last several years to build competitive, best-of-breed solutions, and we have seen great momentum as a result. We wrapped up a record sales year in 2014, and our customers have been extremely positive about Fundtech’s solutions and the value they bring to their business,” added Ed Ho, president and chief operating officer of Fundtech. “Given the complementary nature of our solutions, there is an opportunity for Fundtech to leverage D+H’s established client base to continue to drive growth. We look forward to joining D+H and to growing our business together.” 

“We’re very excited about Fundtech and believe that this transaction will allow D+H to further strengthen our value proposition with relevant technology solutions that appeal to our existing clients and provide us with access to new markets and geographies,” concluded Schmid. “With a combined base of about 8,000 clients worldwide, D+H and Fundtech will have global scale, a comprehensive portfolio of innovative technology solutions and capabilities to continue to execute on D+H’s transformation as a global FinTech player.” 

Acquisition Timing

Closing of the Acquisition is subject to approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 in the U.S. and other customary conditions and is expected to occur during the second quarter of fiscal 2015.

Acquisition Financing

In conjunction with the Acquisition, D+H has entered into an agreement with a syndicate of underwriters, pursuant to which they have agreed to purchase, on a bought deal basis, from D+H and sell to the public (the “Offering”) (i) 16,500,000 subscription receipts (the “Subscription Receipts”), at a price of $37.95 per subscription receipt, for gross proceeds to D+H of $626,175,000, and (ii) $200,000,000 of 5.0% extendible convertible unsecured subordinated debentures (the “Debentures”, and together with the Subscription Receipts, the “Securities”), for aggregate gross proceeds to D+H of $826,175,000. The net proceeds of the Offering will be used by D+H to fund a portion of the purchase price for the Acquisition.

The Securities to be offered have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the U.S. Securities Act and applicable state securities laws. This news release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Securities in the United States or any jurisdiction in which such offer, solicitation or sale would be unlawful.

Concurrently with the announcement of the Acquisition, D+H obtained a commitment letter from The Bank of Nova Scotia, Royal Bank of Canada and Canadian Imperial Bank of Commerce (the “Credit Facility Underwriters”) for secured credit facilities in an aggregate amount of $1.858 billion and US$592.62 million (collectively, the “Credit Facilities”), $550 million and US$267.62 million or the Canadian dollar equivalent which, in aggregate, replace D+H’s existing (i) revolving credit facility, and (ii) non-revolving term credit facility, respectively. The Credit Facility Underwriters, in their capacity as co-lead arrangers of the Credit Facilities, intend to syndicate the Credit Facilities to other financial institutions prior to the Acquisition closing. The Credit Facilities are subject to completion of definitive documentation which shall contain customary representations and warranties and restrictive covenants, including compliance with certain financial ratios, a Total Net Funded Debt to EBITDA ratio for covenant calculation purposes and an interest coverage ratio, and restrictions on further borrowing, acquisitions and dispositions, restrictions on granting liens and other restrictions.

Credit Suisse acted as D+H’s financial advisor on the transaction.