News of the ACI bid for S1 caught up with my summer vacations pretty quickly. Just a few weeks after the announcement of the S1-Fundtech merger, ACI stepped in and made an attractive bid for S1. According to ACI, its offer represents a more attractive option to S1 shareholders than the S1-Fundtech merge.
Some people would remember that this is not the first time ACI made a bid to acquire a competitor. Back in 2002, if memory serves, ACI acquired S2 which was the maker of Open/2 and ON/2. During those days, S2 held a reasonable size of the market (although much less than ACI). The result of the acquisition was that ACI in effect placed both Open/2 and ON/2 in sunset status. The bid was simply a move to take out a competitor, eliminate the competing products and acquaint ACI with the S2 customer base.
Back then, it wasn't a secret that S2 was not in the best of financial shapes. This is not the case with today's S1, even without considering the financial size of an S1-Fundtech combination.
Perhaps none have more interest in the ACI bid than current and prospect Postilion users. And it is understandable. Users wonder what will the future of the Postilion product be. Would ACI want to capitalize on the platform and continue to develop it? Or would they favor their existing EPS product and just kill Postilion?
It's impossible to tell at this point. The ACI announcement speaks of "complementary products" but that's really not the case. Postilion and EPS have much more in common than not, in terms of functionality offered to end users. Under that light, why would ACI want to keep two pretty different platforms that provide the same offering to their customers? Wasn't one of the reasons to sunset Base24 classic based on the principle of focusing business development on one platform only?
Some might suggest that ACI plan to use part of the technology behind Postilion and incorporate it in their EPS product. If that's so, the logical plan would be to move some of the Postilion tech leads to the EPS team and use their skills there. But in this case, Postilion would be gradually abandoned with no business improvements scheduled and with minimal support for card association updates only. ACI would issue a sunset statement for Postilion in a future date, while figuring out a way to offer a realistic migration plan to EPS to current Postilion users.
Perhaps ACI might even consider a wait-and-see tactic and see how their sales force does with Postilion. Maybe there's a plan to go with Postilion on small and mid-level bids and go with EPS & IBM on large-level bids; not that it makes a lot of sense from a technological point of view.
Considering the above, a buy-to-eliminate plan would seem to make sense. But then again, as a friend of mine pointed out, if that's the case we'd be talking about a very expensive move. And that's true. Spending more than half a billion just to kill off a competitor does seem a bit over the edge and won't get many big fans from the ACI shareholders.
There is still no reaction from S1, other than a statement that the bid will be reviewed by the S1 board. I guess we'll just have to wait for the S1 response to see how this whole affair will play out.
UPDATE: S1 has quickly rejected the ACI bid saying that it was not in the best financial and strategic interest of their shareholders. To translate, S1 is saying that they have complete faith in their own long term business plan. And perhaps rightly so. Postilion has evolved from a regional switch owned by a relatively small company to a global player praised by Gartner, sold and operated worldwide. Considering events of past years, I suspect that the S1 CEO was the driving force behind this decision.
This puts ACI in a bad position. In competitive comparisons, ACI is now going to have a hard time explaining to prospects how their own EPS offering is better than Postilion. Likewise, the S1 sales force will surely make certain that prospects know about this series of events and the failed ACI attempt to buy them.
UPDATE: ACI fights back the S1 board decision and wants to get direct support from S1 shareholders. In my very humble opinion, I very much doubt that the S1 board did not contact the major S1 shareholders before rejecting the ACI proposal. Regardless of what's happening behind the scenes, it's becoming painfully obvious that ACI is not happy with the S1-FundTech deal and will go at any lengths to prevent it.
UPDATE: Well, this is getting more and more exciting. After ACI's attempt to solicit proxies against the S1-FundTech merger, S1 issued a comprehensive response to shareholders. Soon thereafter, ACI increased the cash part of the bid to acquire S1. I think that ACI is trying to persuade investors not in for the long run to go for the cash. The ACI press releases keep on singing this tune. In these uncertain times, some investors might very well be tempted. The S1 press release recommending to vote for the S1-FundTech merger appears to offer more concrete arguments to shareholders.
