Heartland Payment Systems Inc. (HPY) completed the acquisition of U.-S.-based TouchNet Information Systems Inc., an integrated commerce solutions provider to higher-education institutions. The deal was signed on Jul 30.
The stock gained 0.9% in the last trading session and closed at $48.28. Since the news came after market close, investors are expected to respond positively to it in the next trading session, leading to a rise in the share price.
With over 6.0 million students, TouchNet currently serves nearly one third of the higher-education enrollment in the U.S. Subsequently, the deal will add more than 600 higher-education clients to Heartland’s Campus Solutions.
The acquisition includes TouchNet’s software, customer base and existing employees, including management team.
Financials of the Deal
Heartland paid $375 million in cash for TouchNet. The amount was financed by a 5-year secured term loan with a portion of new credit term facility. This facility has a $400 million secured revolving credit line with Bank of America Merrill Lynch, BMO Capital Markets Corp. and SunTrust Robinson Humphrey, Inc. being the major facilitators.
While the deal is expected to deliver marginal earnings accretion in 2014, Heartland projects it to yield over $60 million of net revenue, adding at least 30 cents per share in 2015.
Rationale
The latest acquisition is Heartland’s largest one to date and fits in well with the company’s existing Campus Solutions business, thereby expected to boost overall results. This acquisition will also help Heartland to provide end-to-end integrated commerce and payment solutions to the higher education market that is yet not provided in the industry.
Additionally, with this acquisition, Heartland will experience more growth opportunities in the booming market, which will result in good relationships with the smallest as well as largest higher-education institutions. This will not only enhance the company’s Campus Solution business but also expand its products portfolio, thereby generating huge revenue growth.
This optimism is also reflected in the upward revisions in the Zacks Consensus Estimate, which rose 7.0% to $2.61 for 2015 in the last 60 days. The long-term growth is targeted at 14.3%.
Currently, Heartland has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Better-ranked financial transaction services stocks that are worth reckoning include Green Dot Corporation (GDOT), Vantiv, Inc. (VNTV) and Equifax Inc. (EFX). While Green Dot and Vantiv sport a Zacks Rank #1(Strong Buy), Equifax carries a Zacks Rank #2 (Buy).
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