Toronto-based financial technology company Davis + Henderson Corp. will push further into the U.S. with a $1.2-billion (U.S.) acquisition of banking software provider Harland Financial Solutions, headquartered in Florida.
The acquisition will triple D+H's U.S. customer base to more than 6,200 financial institutions after accounting for shared relationships, and the company's chief executive Gerrard Schmid said that scale will make it easier to compete with other U.S. players who also provide the technology services banks need to process electronic payments and transactions, among other things.
After closing the deal, 36 per cent of D+H's revenue will come from the U.S., compared with 8 per cent today. "This is important because clearly the U.S. banking market is recovering, as is the overall U.S. economy, so I think from a timing perspective it positions us well to benefit from a strengthening market," Mr. Schmid said in an interview.
To finance the all-cash acquisition, D+H is taking advantage of hot equity markets, launching a $600-million bought deal financing Tuesday, co-led by Scotia Capital, RBC Dominion Securities and CIBC World Markets. The underwriters are selling $400-million worth of subscription receipts and $200-million of convertible debentures that pay a 6 per cent yield. The other $600-million will be funded through a syndicate of existing and new private placement lenders.
There's little overlap between Harland and D+H's business lines, but the two companies could work with the same customers. Harland runs a technology-focused business that targets banks, credit unions and mortgage companies. It has strength in core lending, and its lending and compliance products and services are used by 25 per cent of U.S. banks to generate loan documentation that is compliant in all 50 states.
D+H's desire to expand south of the border was no secret. Mr. Schmid told The Globe and Mail late last year that the company was focused on serving the community banking and credit union sector, which would be roughly 6,000 to 7,000 mid-sized companies. It also hopes to work more with the U.S. operations of Canadian banks.
D+H has come a long was from its roots as a cheque printing company in Canada, a business that thrived particularly before the rise of electronic payments. By 2006, D+H recognized that it needed to diversify more aggressively, and wanted to piggyback off its existing relationships with Canadian banks. These days, the business still has a personal and commercial cheque group in its payment solutions business, but has shifted its focus toward financial technology.
The company said on Tuesday's conference call that the deal could help it partner with other companies, or even lead it to add other small businesses to its group. Mr. Schmid previously said that D+H acquisitions tend to have a "certain cadence" where the company will do a big deal, followed by several bolt-on deals. The firm has made eight deals in the last few years.
The last two purchases the company made were a California-based cloud computing company and a mortgage loan origination business out of South Carolina.
"Now, we're back to a big one," Mr. Schmid said. "Our shareholders value businesses that are highly predictable and stable."
(Jacqueline Nelson is a Globe and Mail Financial Services Reporter.)
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