11:35:39 EDT Fri 29 Mar 2024
Enter Symbol
or Name
USA
CA



DH Corp
Symbol DH
Shares Issued 86,405,785
Close 2015-03-27 C$ 39.36
Market Cap C$ 3,400,931,698
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DH to acquire Fundtech for $1.25-billion (U.S.)

2015-03-30 15:56 ET - News Release

Mr. Gerrard Schmid reports

D+H ANNOUNCES AGREEMENT TO ACQUIRE FUNDTECH, A LEADING GLOBAL PAYMENTS AND TRANSACTION BANKING SOLUTIONS PROVIDER AND $826,175,000 BOUGHT DEAL FINANCING

DH Corp. has entered into a definitive agreement to acquire Fundtech, a leading provider of global payments solutions to banks worldwide, for cash consideration of $1.25-billion (U.S.).

"The complexity of today's global payments infrastructure, proliferation of channels and an increasing desire for real-time payments is driving demand for payment solutions that allow banks to streamline payment processing, while providing a more sophisticated and comprehensive view of liquidity management across various currencies and geographies," said DH chief executive officer Gerrard Schmid. "The acquisition of Fundtech puts D+H at the forefront of these trends globally, providing us with a market-leading software platform with established scale in mission-critical payment technology. It also delivers capabilities that are relevant to our existing customer base in Canada and the U.S. while making D+H more relevant to global financial institutions and large U.S. banks."

Overview of Fundtech

Headquartered in New York, Fundtech is a leading provider of financial technology to banks and corporations of all sizes in the Americas; Europe, Middle East and Africa (EAPA); and Asia-Pacific regions with approximately 1,500 employees and 19 offices worldwide, including development centres in the United States, India, Israel, Switzerland and the United Kingdom. Fundtech's solutions are mission critical to the day-to-day operations of banks and corporate clients. Fundtech offers a comprehensive line of transaction banking solutions, including global and domestic payments solutions, financial messaging, corporate cash and liquidity management, and merchant services. Fundtech has approximately 1,200 clients, including global money centre banks, mid-sized banks and credit unions, non-bank financial institutions, central banks, and corporates. Fundtech was founded in 1993 and acquired by Chicago-based private equity firm GTCR in 2011. Fundtech's 2014 adjusted revenue was $263-million (U.S.) (1) ($291-million), and adjusted earnings before interest, taxes, depreciation and amortization (1) were $68-million (U.S.) ($75-million), representing growth of 9 per cent and 15 per cent over 2013, respectively.

"I'm very proud of the company and culture that we have built, and believe that D+H's client-centric approach and [financial technology] expertise represent a great strategic fit for us," said Reuven Ben Menachem, founder and chief executive officer of Fundtech. "Fundtech joining D+H will create new opportunities for our employees and clients alike."

Financially, the combination of DH and Fundtech would result in:

  • Pro forma 2014 adjusted revenues (1) of approximately $1.45-billion (2);
  • Pro forma 2014 adjusted EBITDA (1) of $428-million (2), with 30-per-cent adjusted EBITDA (1) margin, and adjusted net income (1) of $216-million (2);
  • Attractive medium-term synergies through cross-selling opportunities and cost savings;
  • Strong combined cash flow that will enable deleveraging, support dividend payments and finance investment for future growth. DH is targeting a debt-to-EBITDA ratio (1) of less than 2.5 times by the end of 2016.

Market opportunity

DH's management believes that the estimated annual information technology spend by banks for all of the markets in which Fundtech participates is approximately $5-billion (U.S.) to $6-billion (U.S.). The market opportunity for global payments technologies is among the most attractive in the fintech industry today. Market penetration of these solutions is still in the early stages, which creates significant opportunities for companies like a combined Fundtech and DH that have the scale, proven technology solutions, strong banking domain knowledge and trusted client relationships to compete in this market.

"We have made significant investments in our platforms over the last several years to build competitive, best-of-breed solutions, and we have seen great momentum as a result. We wrapped up a record sales year in 2014, and our customers have been extremely positive about Fundtech's solutions and the value they bring to their business," added Ed Ho, president and chief operating officer of Fundtech. "Given the complementary nature of our solutions, there is an opportunity for Fundtech to leverage D+H's established client base to continue to drive growth. We look forward to joining D+H and to growing our business together."

"We're very excited about Fundtech, and believe that this transaction will allow D+H to further strengthen our value proposition with relevant technology solutions that appeal to our existing clients and provide us with access to new markets and geographies," concluded Mr. Schmid. "With a combined base of about 8,000 clients worldwide, D+H and Fundtech will have global scale, a comprehensive portfolio of innovative technology solutions and capabilities to continue to execute on D+H's transformation as a global fintech player."

Acquisition timing

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 during the second quarter of fiscal 2015.

Acquisition financing

In conjunction with the acquisition, DH has entered into an agreement with a syndicate of underwriters co-led by CIBC, RBC Capital Markets and Scotiabank, pursuant to which they have agreed to purchase, on a bought-deal basis, from DH and sell to the public (i) 16.5 million subscription receipts, at a price of $37.95 per subscription receipt, for gross proceeds to DH of $626,175,000; and (ii) $200-million of 5-per-cent extendible convertible unsecured subordinated debentures, for aggregate gross proceeds to DH of $826,175,000. The net proceeds of the offering will be used by DH to finance a portion of the purchase price for the acquisition.

DH has granted the underwriters overallotment options to purchase up to an additional 2,475,000 subscription receipts and up to an additional $30-million aggregate principal amount of debentures on the same terms and conditions as the offering, exercisable in whole or in part at any time not later than the earlier of (i) the 30th day following the closing date of the offering, and (ii) the occurrence of a termination event (3). If the overallotment options are exercised in full, DH will receive further proceeds from the offering of $123,926,250, for aggregate gross proceeds from the offering of $950,101,250.

Each subscription receipt represents the right of the holder to receive, upon closing of the acquisition, without payment of additional consideration or further action, one common share of DH plus an amount equal to the amount per common share of DH of any dividends for which record dates have occurred during the period from the closing date of the offering to the date immediately preceding the closing date of the acquisition, net of any applicable withholding taxes, if any.

The debentures will have an initial maturity date of the termination date (3), which will be automatically extended to Sept. 30, 2020, upon closing of the acquisition. The debentures will have an interest rate of 5.0 per cent per annum payable semi-annually in arrears on the last day of June and December in each year, commencing June 30, 2015. Each $1,000 principal amount of debentures is convertible at the option of the holder into approximately 18.9573 common shares of DH (representing a conversion price of $52.75), subject to adjustment in accordance with the trust indenture governing the debentures, at any time prior to the close of business on the earlier of the business day immediately preceding the maturity date and the business day immediately preceding the date fixed for redemption of the debentures.

The offering is being made under DH's short-form base-shelf prospectus dated Dec. 19, 2014, and the terms of the offering will be more fully described in a prospectus supplement to be filed on or about April 1, 2015, with the securities commissions or similar authorities in each of the provinces and territories of Canada. The offering is expected to close on or about April 9, 2015, and is subject to certain conditions, including, but not limited to, the approval of the Toronto Stock Exchange. Canadian resident purchasers that receive common shares (i) in exchange for subscription receipts upon closing of the acquisition, or (ii) upon conversion of debentures following closing of the acquisition, should in each case be entitled to participate in DH's dividend reinvestment plan.

Concurrently with the announcement of the acquisition, DH obtained a commitment letter from the Bank of Nova Scotia, Royal Bank of Canada and Canadian Imperial Bank of Commerce for secured credit facilities in an aggregate amount of $1,858-million and $592.62-million (U.S.), $550-million, and $267.62-million (U.S.) or the Canadian-dollar equivalent, which, in aggregate, replace DH's existing (i) revolving credit facility and (ii) non-revolving term credit facility, respectively. The credit facility underwriters, in their capacity as co-lead arrangers of the credit facilities, intend to syndicate the credit facilities to other financial institutions prior to the acquisition closing. The credit facilities are subject to completion of definitive documentation, which shall contain customary representations and warranties, and restrictive covenants, including compliance with certain financial ratios, a total-net-funded-debt-to-EBITDA ratio for covenant calculation purposes and an interest coverage ratio, and restrictions on further borrowing, acquisitions and dispositions, restrictions on granting liens, and other restrictions.

The credit facilities comprise different components: (i) a non-revolving, non-amortizing term credit facility in the amount of $245-million (U.S.) or the Canadian-dollar equivalent to be available in a single drawdown, for the purpose of financing a portion of the purchase price; (ii) a non-revolving, non-amortizing term credit facility in the amount of $503-million or the U.S.-dollar equivalent to be available in a single drawdown, for the purpose of refinancing DH's existing notes should DH choose to prepay the outstanding principal amount of such notes; (iii) a non-revolving, non-amortizing term credit facility in the amount of $80-million (U.S.) or the Canadian-dollar equivalent to be available in a single drawdown, for the purpose of financing a portion of the purchase price; (iv) a non-revolving, non-amortizing term credit facility in the amount of $805-million to be available in a single drawdown, for the purpose of financing a portion of the purchase price; and (v) a $550-million revolving, non-amortizing term credit facility, which will (a) replace DH's existing $450-million revolving credit facility, (b) finance, in part, the acquisition and (c) otherwise be used for general working capital purposes.

DH intends to issue approximately $80-million (U.S.) or the Canadian-dollar equivalent of senior secured guaranteed notes to certain institutional investors (including to some of its current noteholders) following the closing of the acquisition. Following the issuance of such additional notes, the proceeds therefrom will be used by DH to repay the drawdown on the additional notes term facility.

Credit Suisse acted as DH's financial adviser on the transaction.

Conference call and webcast

DH will conduct a conference call and live webcast on March 30, 2015, at 4:15 p.m. EDT. The call will be hosted by chief executive officer Mr. Schmid and chief financial officer Karen H. Weaver. An accompanying slide deck will be posted in the investor section of the company's website shortly before the call. To access the call:

Local or international:  647-427-7450

Toll-free within North America:  1-888-231-8191

A replay of the call will also be available until April 13, 2015. To access the replay:

Local or international:   416-849-0833 (password 2684079)

Toll-free within North America:  1-855-859-2056 (password 2684079)

The link to the webcast and an accompanying slide presentation will be posted in the investors section of the DH website under events and presentations.

(1) These financial measures are not defined under international financial reporting standards.

(2) All dollar amounts were converted from U.S. dollars to Canadian dollars using the following exchange rates: (i) year ended Dec. 31, 2014: $1 (U.S.) equals $1.1046; and (ii) year ended Dec. 31, 2013: $1 (U.S.) equals $1.0298.

(3) A termination event will have occurred if: (i) the acquisition closing does not occur prior to 5 p.m. (Toronto time) on Sept. 30, 2015; (ii) the merger agreement is terminated at any earlier time; or (iii) DH advises the subscription receipt agent and the lead underwriters, or announces to the public, that it does not intend to proceed with the acquisition. The date upon which such event occurs is the termination date.

We seek Safe Harbor.

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