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D+H to Acquire Harland Financial Solutions

 

Aug 7 - Davis + Henderson Corporation (TSX: DH) has entered into an agreement to acquire Harland Financial Solutions, a leading U.S.-based provider of strategic technology, including lending and compliance, core banking, and channel management technology solutions to U.S. banks, credit unions, and mortgage companies. The purchase price for the Lake Mary, Fla.-based HFS is approximately $1.2 billion in cash.

The acquisition enhances D+H's competitive position as a leading North American financial technology provider to larger financial institutions, community banks and credit unions. In addition to D+H's existing strong relationships with Canadian and U.S. financial institutions, the acquisition provides D+H with:

Financially, the combination of D+H and HFS creates a company with:

"Acquiring HFS fully aligns with D+H's FinTech vision and our objective of growing our technology capabilities and value proposition in the service of banks and credit unions," said Gerrard Schmid, CEO of D+H. "With proven technology solutions that are mission critical for clients and complementary to our D+H offerings, solid financial performance, including strong cash flows provided under long-term contracts, and an experienced team of approximately 1,350 employees across some 17 locations, HFS adds the scope and scale necessary for D+H to be a trusted market leader in the U.S. We also believe that this union will allow us to create even more differentiated product offerings by combining our market-leading lending solutions with HFS' strong suite of lending products."

"For our shareholders, HFS provides the strategic platform to accelerate the growth and diversification of D+H revenues and cash flows," said Brian Kyle, chief financial officer of D+H, "and importantly, the transaction will be immediately accretive at an Adjusted Net Income per share level. The combination of the strong and growing cash flows of HFS with those of D+H will allow us to target reducing our Debt to EBITDA ratio1 to below 2.5 times from 3.4 times at closing by 2016 while fully supporting our dividend."

Two Strong Platforms for Cross-Selling Opportunities

HFS provides two equally important platforms: lending solutions and core banking technology.

HFS' lending solutions platform includes LaserPro®, the leading automated loan compliance solution in the United States. D+H's lending solution platform includes market-leading Mortgagebot Point of Sale and Loan Origination Systems. By combining these suites, D+H will have a substantial portfolio of best-of-breed solutions to cross-sell to banks and credit unions in the large and growing U.S. lending market.

HFS also commands the number four U.S. market position in core technology, a segment that D+H does not address with its current solutions. Through its PhoenixEFE technology – the 2012 recipient of the Xcelent Technology Award for Core Banking Solutions – HFS supports mission-critical activities including customer account openings, payment processing, deposit account balancing and interest-rate calculations, and the management of commercial, consumer and mortgage loans.

"Experience shows that the installation of a core banking system drives additional sales of ancillary FinTech solutions. HFS has several competitive solutions such as online and mobile banking, branch automation, business intelligence solutions and lending solutions to complement the sale of a core platform," said Schmid. "In combination with our D+H products we can address the broader needs of our combined customer base and use our improved value proposition as a springboard to grow in the U.S. market that includes over 13,000 credit unions and community banks."

According to a 2012 survey by the Independent Community Bankers of America, more than half of community bank respondents are using core banking technology systems that are more than 10 years old. These older systems limit a bank's ability to launch new products in a timely manner and to offer an integrated customer experience across channels, are costly to maintain and make it more challenging to remain compliant in an increasingly complex regulatory environment. With the U.S. economy and banking sector continuing to stabilize, market forecasts suggest spending on core banking technology will increase over the next few years.

"HFS' services, including cloud solutions delivered on an account-based fee basis or in house depending on customer preferences, are the perfect complement to D+H's portfolio business solutions, with limited overlap of clients or products," said William W. Neville, president of D+H's U.S. operations. "The combination of our two firms will create a larger product and service portfolio for U.S. banks and credit unions who will now be able to access integrated, market-leading technology solutions through a single vendor. We are delighted to welcome HFS' leadership and employees to D+H and look forward to working together in providing reliable, effective solutions that are relevant to our customers."

Raju Shivdasani, CEO of HFS, said: "The combination of D+H and HFS will create a powerful combination with both parties bringing significant capabilities to the North American FinTech market."

"We are excited by the prospect of becoming part of D+H and believe that this transaction is right for both our customers and our employees. We are joining a growing, trusted, customer-focused organization that is committed to helping clients grow, compete, and offer their desired consumer experience. By combining organizations, we'll be well positioned to do even more for customers in future," said Bill Zayas, chief operating officer of HFS.

Acquisition Terms and Timing

D+H is acquiring 100 percent of HFS from its parent company, Harland Clarke Holdings Corp., at a purchase price of $1.2 billion. HFS' Adjusted revenue was $296.8 million and $287.2 million for fiscal 2012 and 2011, respectively. Adjusted revenue for HFS includes non-cash fair value acquisition accounting adjustments, applicable in such periods only, related to deferred revenues. The purchase price for the acquisition will be paid in cash.

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 on or about Aug. 19, 2013.

Acquisition Financing

In conjunction with the acquisition, D+H has entered into an agreement with a syndicate of underwriters co-led by Scotiabank, RBC Capital Markets and CIBC to sell $400 million of subscription receipts and $200 million of 6 percent extendible convertible unsecured subordinated debentures on a bought deal basis for gross proceeds of $600 million. In addition, a syndicate of existing and new private placement lenders have offered to provide funding for the acquisition. As these transactions may not be completed by the time of acquisition closing, D+H has obtained a fully committed bridge facility for the full purchase price plus transaction expenses required to close 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 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 Subscription Receipts or Debentures in the United States or any jurisdiction in which such offer, solicitation or sale would be unlawful.

Raymond James acted as D+H's financial advisor on the transaction.

About D+H
D+H is a leading provider of secure and reliable technology solutions to North American financial institutions with a reputation for being a trusted partner that helps clients build deeper, more profitable relationships with customers based on rich industry and client insight, and consumer knowledge. Our integrated, compliant technology solutions enable clients to grow, compete, and optimize their operations, while our forward looking approach helps them stay ahead of the market and anticipate changing consumer needs. Today, more than 1,700 banks and credit unions across North America rely on D+H to deliver solutions across three broad service areas: Banking and Lending Technology, Lending Processing Solutions, and Payments Solutions. In 2012, D+H rose to 35th on the FinTech 100, a ranking of the top technology providers to the global financial services industry, and is ranked 24th on the 2013 Branham 300, a listing of the top Canadian ICT companies. Davis + Henderson Corporation is listed on the Toronto Stock Exchange under the symbol DH. Further information can be found in the disclosure documents filed by Davis + Henderson Corporation with the securities regulatory authorities, available at www.sedar.com.

About Harland Financial Solutions
HFS is a leading United States-based strategic technology partner to financial institution clients of all sizes, including commercial banks, thrifts and credit unions. HFS serves 5,400 financial institutions and counts more than half of the top 100 financial institutions in the United States as its clients. The company supplies comprehensive software solutions and services that help increase institutional performance and drive profitability. Its portfolio of solutions includes branch automation, business intelligence, core processing systems, enterprise content management, financial accounting, lending & compliance, loan servicing, payments, risk management and self service solutions. HFS is headquartered in Lake Mary, Fla., and operates from offices throughout the United States, as well as in Dublin, Ireland, Trivandrum, India, and Tel Aviv, Israel.

 

 


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