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Jack Henry strikes its largest deal

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Monett-based Jack Henry & Associates Inc. is about to make its largest acquisition ever.

In June, the banking software supplier expects to close on a $300 million purchase of Elizabethtown, Ky.-based electronic bill provider iPay Technologies LLC. The acquisition should broaden Jack Henry’s customer base and expand its presence in the electronic bill payment arena, said Jack Henry CEO Jack Prim.

“The last three acquisitions that we’ve done … have been in and around various parts of the payment systems – ATM and debit cards, credit card transactions, remote deposit capture transactions and electronic bill payment,” Prim said. “Those parts of our business are growing much faster than our traditional business. What it gives us is some additional presence in that market, but really some additional high-growth business.”

On Oct. 1, publicly traded Jack Henry (Nasdaq: JKHY) closed on its acquisition of data processing and check imaging provider Georgia-based Goldleaf Financial Solutions Inc., purchasing an estimated $19 million in outstanding stock and absorbing company debt for a total value of about $60 million, Prim said.

Later that month, Jack Henry announced its intention to purchase Washington-based Pemco Technologies, and Prim said the company paid a similar price.

While he couldn’t comment on revenue expectations through iPay until the deal receives regulator approval, he estimated Pemco and Goldleaf would add $100 million in annual revenue.

Performance expectations, however, are high for the nine-year-old iPay. The business, held in the portfolios of Boston-based private-equity firms Spectrum Equity Investors and Bain Capital Ventures, has grown to be the largest independent electronic bill pay provider in the U.S., according to a Jack Henry news release.

In the past year, iPay has increased its customer base by more than 50 percent, offering its products and services to more than 3,600 banks and credit unions, said iPay co-founder Michael Bowers.

One of those clients is Springfield-based TelComm Credit Union, which also has a contract with Jack Henry’s second most recent acquisition, Pemco, said Don Ackerman, TelComm president and CEO. He said he’s been pleased with both services.

“I’m not aware of any particular changes that have been made so far,” he said. “But I’m hoping they’ll enhance the products and the pricing remains the same.”

Prim attributes iPay’s growth to a single-focus strategy on electronic bill payment. The company is one of four in the world that offers that service, Bowers said, and he likens the logistics of consistently routing large numbers of payments – at the right times and in the right amounts – to “a secret sauce we have.”

“It sounds simple: ‘How hard can it be to get a payment to GMAC for my car payment?’” Bowers said. “Well, if you’ve got a couple of million customers sending payments and there’s five or six different GMACs out there to where you route payments, it does get complicated.”

Jack Henry has seen iPay’s 243 employees – who Prim said would continue business as usual after the acquisition – in action for the past two years, since the companies partnered on some “back-end” offerings for Jack Henry’s clients, Bowers said, noting iPay processes the electronic bill payments for companies to which Jack Henry provides computer systems and other transaction services.

Jack Henry expects to offer additional services for its existing electronic bill pay clients, and Prim believes some customers that are using other service providers, or not using a bill pay service at all, would decide to use iPay after the acquisition.

“I think that on their own, they have the ability to continue to grow very nicely compared to the rest of the industry,” Prim said. “When you add the synergies of selling to our customer base, that makes it even stronger.”

Jack Henry’s customer base consists of nearly 12,000 financial services companies.
Prim said not to expect additional merger and acquisition activity by Jack Henry in the near future.

“We’ll probably spend the better part of the next year absorbing this and completing the integration of the other two acquisitions,” Prim said.

Jack Henry is coming off a quarter in which revenue, gross profit and net income each increased by double digits. Through its third quarter ending March 30, the firm has recorded $87.9 million in net income, or $1.03 a share, up 17 percent compared to $75.3 million the year before.

Construction crews are expected to complete Jack Henry’s $8.8 million Springfield campus by June, near Battlefield Road and U.S. Highway 65, Prim said. With staff members spread out among six Springfield sites, he said employees would move in phases beginning in early July and completed by mid-August.

Jack Henry shares closed May 12 at $25.43, just off the company’s 52-week high of 26.50. The stock is up 45 percent the past year, according to Dow Jones Newswire.[[In-content Ad]]

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