Total System to Buy ProPay

Boosting its merchant acquiring services, Total System Services Inc. (TSS - Analyst Report) announced its intention to acquire Utah-based payment solution provider – ProPay – for an undisclosed amount. Subject to regulatory approvals, the deal is expected to culminate by the end of this year.

With over 15 years of experience in the financial services industry, ProPay offers user-friendly, well-protected and reasonably priced payment solutions to different categories 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.

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 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 it achieve its long-term target of being among the top 10 acquirers in the world.

Growth Through Acquisitions

Total System continues to 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) of Omaha, Nebraska.

Further in January 2011, Total System acquired the remaining 49% of FMNS for $169.6 million. Following the completion of the acquisition, FNMS was renamed as TSYS Merchant Solutions (TMS). Additionally, in May 2011, the company acquired TermNet Merchant Services, which is the 52nd largest merchant acquirer in the U.S. by dollar volume, according to The Nilson Report.

Further, in October 2011, Total System announced the merchant portfolio acquisition of Florida-based Vanguard Payment Systems Inc. Total acquisitions in the merchant acquiring space added 2.9% to the top-line growth in 2011, and are expected to augment its contribution to the financials in 2012 and beyond.

Total System’s risk-free balance sheet, modest cash position and cash flow generating capability provide viable scope for efficient capital deployment, primarily through share buybacks and acquisitions. Going ahead, we believe new acquisitions and joint venture deals would help perk up the company’s growth and maintain its competitive position against arch-rivals such as Heartland Payment Systems Inc. (HPY - Snapshot Report) and Wright Express Corp. (). Also, its pipeline of international opportunities should help stimulate above-average growth.

Currently, we maintain a long-term Neutral stance on Total System with a Zacks Rank #3, which implies a short-term Hold rating.