Mergers and Acquisitions in Financial Technologies

Mergers and Acquisitions in Financial Technologies Mark Johnson Vice Chairman, CheckFree Corporation April 13, 2007 CheckFree Overview  More than 25 Years as a Leading Provider of Financial Electronic Commerce Services and Products  Publicly Traded on NASDAQ as CKFR  3,600 Employees Worldwide, 18 Locations  Annual Revenues of $879.4 Million for Fiscal Year 2006  Three Divisions  Electronic Commerce  Investment Services  Software 2 CheckFree Overview  E-bill and e-payment solutions  Walk-in and telephone bill payment solutions  Internetworking across web, phone, and agent payment services  Online banking transactions  Outsourced technology and services to separately managed accounts industry  Outsourced portfolio management solutions Electronic Commerce 75% Investment Services 12% Software 13%  ACH processing through bank payment solutions  Reconciliation, workflow and messaging solutions % of total revenue FY06 (ended June 30, 2006)  E-billing/e-statement software and services 3 CheckFree Mergers and Acquisitions: 1995-2000  Feb. 1996 Servantis Systems Holding, Inc. $165.1 million  May 1996  Jan. 1997  March 1999 Security APL $53 million Intuit Services Corporation $199 million Möbius Group, Inc. $19.1 million  April 2000  Sept. 2000 BlueGill Technologies, Inc. MSFDC LLC (TransPoint) $235 million ($47 per share X 5 million shares) (First Data, Microsoft and Citibank venture) $139.4 billion ($82 per share X 17 million shares) 4 CheckFree Mergers and Acquisitions: 2000-Present  Nov. 2003  June 2004 HelioGraph, Ltd. $18.3 million American Payment Systems, Inc. $110 million $56 million  April 2005  Sept. 2005 Accurate Software Ltd. Integrated Decision Systems Inc. $18 million $18 million  Oct. 2005  Jan. 2006  April 2007 Aphelion, Inc. PhoneCharge, Inc. $100 million Carreker Corporation $206 million $245 million  June 2007 (expected) Corillian Corporation 5 So You’re Interested in Selling Your Company  What should you do?  Do you know who you want to sell your company to?  Do you want to use an Investment Banker to help you? 6 When and Why are Investment Bankers Involved  Investment bankers act as advisors on potential deals. For this they are paid a percentage of the deal  They bring deal expertise  If a deal isn’t large dollar wise, they may have limited interest in advising  If the deal is significantly large then the Investment Bankers can provide specialized capabilities. (Financing, legal structuring, tax advising etc.)  Typically they will set up a bid process  Potentially a higher price but much more work 7 Evaluating the Opportunity  CheckFree receives requests to evaluate 100 deals per year  On average, 60 deals go through first round analysis  20 percent, or 12 deals per year proceed to second round evaluation  3 percent, or two deals per year progress to closing  If we’re being contacted, more then likely we will be busy and have resource constraints 8 Three Types of CheckFree Acquisitions  Strategic: Market, technology, future growth  Drive future expansion and growth of core market strategy  Adjacent Market Expansion  Extend into a new market adjacent to a current market  Transaction Services Growth  Add efficiency and leverage to CheckFree processing model, can provide additional organic growth  So, who would be interested in your company and why? 9 Key Questions the Buyer will have in a Potential Acquisition  Does the company have good customers?  Does the company offer relevant technology?  Is the company well managed?  Is the company operating based on a solid economic model? 10 What is the Buyer’s Process? Here’s CheckFree’s S Strategic Analysis • Assessment of Industry & Market Characteristics • Validation of business strategy • Validation of transaction rationale and alignment with business strategy • Identify best transaction alternatives • Development of profile compatibility and strategic fit measurements for target selection A Target D Transaction N and Execution I Integration and Control • Integration execution and monitoring • Implement improvement initiatives identified during transaction process • Continuous monitoring of transaction results against benchmarks • Sales / divestitures Assessment Development Negotiation • Identify / screen target for best strategic fit • Selection / prioritize targets based on transaction execution risk • Commercial due diligence on targets: assessing impact of product, market, customer, competitor and industry risks on target performance • Negotiate purchase agreement and obtain board/shareholder approval • Valuation and modeling linked to due diligence • Due diligence: • Financial / tax / hr / ops / tech / legal • Transaction structure / Letter of Intent • Integration assessment and planning, communication planning and synergy analysis 11 What will the Buyer Want in Due Diligence?  Business Plan  Customers  Review of the Financials  Revenue growth  Profitability of company  Review of Balance sheet  Management Team  Employees & Benefits  Competition  Culture of Organization 12 Buyer Due Diligence, continued  Detailed Information  Contract information (term & pricing)  Employee salaries and agreements  Law suits and other “negative” information  Interfacing with levels below senior management  Begin assessing go forward plan  Business model  Synergy opportunities  Future management roles 13 Acquisition Challenges  Accessing information for in-depth due diligence  Understanding the business model  Understanding competitive threats  Assessing a go forward plan  Determining the future role of management  How does this all impact the Buyer’s view of Valuation 14 Other Acquisition Considerations Potential Red Flags for Buyers:  Employing multiple family members  Side agreements  Company shells  Excessive perks  Pending lawsuits  Patent issues  Unrealistic Expectations 15 Final Hurdles  Can the Buyer and Seller agree on a price?  Can they agree on the structure of the deal?  Cash, stock, earn out  Working capital  Can they agree on the terms of a purchase agreement?  Warranties & Reps  Escrow provisions  Are there any Regulatory or Legal issues?  Is the deal final? 16 The Positive of Being in Financial Technology  Financial technology is a growing space  Recurring revenue model is very favorable  Strong merger and acquisition activity has historically occurred  So there is a very good chance you’ll be able to sell your business 17 Mergers and Acquisitions in Financial Technologies Mark Johnson Vice Chairman, CheckFree April 13, 2007