Austin-based NetSpend to be acquired for 1.4 billion by Georgia company
Feb 20, 2013 (Menafn - Austin American-Statesman - McClatchy-Tribune Information Services via COMTEX) --AUSTIN-BASED NETSPEND HOLDINGS -- a company founded in an Austin apartment in 1999 by two immigrants from Mexico -- said Tuesday it has agreed to be acquired by payment processor TSYS for about 1.4 billion in cash.
NetSpend sells prepaid debit cards and other financial services, targeting consumers who don't have traditional bank accounts but want an option other than cash or money orders.
From its humble beginnings, the Austin company has grown into a leader in the prepaid debit industry, selling its cards at more than 62,000 locations, including convenience stores, retailers and check cashers. NetSpend had 351.3 million in revenue in 2012.
NetSpend has about 500 employees, most of them based in Austin. No staffing reductions are planned due to the acquisition, company officials said.
NetSpend's operations will remain in Austin, and the company's locations in Atlanta and San Mateo, Calif., will remain open. NetSpend -- which raised 204 million in an initial public offering in 2010 -- will become a wholly owned subsidiary of TSYS, and its name and product brands will stay the same, officials said. NetSpend's CEO Dan Henry will join the TSYS executive team.
"With the strength and resources of TSYS, our opportunities are endless," Henry said in a written statement. "I can't think of a better, more strongly positioned industry leader who can help us take NetSpend to the next level."
Bertrand Sosa, who started NetSpend with his brother Roy, said in an email Tuesday: "We are excited to see another great chapter unfold to a story we began over a decade ago, when we founded NetSpend with no more than 750, a product vision and a lot of passion. NetSpend is proof dreams do come true and a reminder that entrepreneurs everywhere should continue to dream big."
TSYS, based in Columbus, Ga., has a stock market value of about 4.3 billion. It has been expanding from its traditional role as a third-party payment processor through acquisitions.
The deal is the second acquisition of a publicly traded Austin company this year. Last month, Pervasive Software agreed to be bought for 161.9 million by California-based rival Actian Corp.
"It's always hard to see a publicly held company go away, because when you lose the corporate headquarters, you often lose some of the involvement in the community," said Austin tech industry consultant Bob Smith, with Bridgepoint Consulting Group. "On the positive side, it can free up some senior executives to go do other startups or become active angel investors. They've not only had a financial windfall, but they now have more time if they're so inclined and stay in town."
Also pending is a 24.4 billion leverage buyout offer for another area company, Round Rock-based Dell Inc.
When the Sosas founded NetSpend in 1999 they were University of Texas students who saw a growing market for prepaid cards among people who had money but not credit or debit cards.
They originally planned to sell prepaid debit cards to teenagers so they could make purchases online. But as they dealt with the headaches of selling the cards at schools and malls, they decided to shift gears and target a far larger market - people without bank accounts.
NetSpend gave the company's original neon cards a more staid design and began selling them at check-cashing centers.
Bertrand and Roy Sosa left NetSpend in 2006 and 2008, respectively, and co-founded Austin-based financial services firm Rev Worldwide.
The Sosas, who are no longer NetSpend shareholders, also founded RISE Austin, an annual gathering that brings together aspiring, new and veteran entrepreneurs to meet and exchange ideas on a variety of topics in small sessions.
More than 60 million U.S. consumers don't have a traditional bank account or rely on alternative financial services, according to trade group estimates. Prepaid cards allow users to deposit cash on the card and then use it for credit or debit transactions. The cards include fees for activation and often a fee each time they are used.
Today, NetSpend has more than 2.4 million active cardholders. The company has recently signed a number of sizable deals, including an agreement to sell its Visa prepaid cards at more than 7,000 Family Dollar stores and 5,000 7-Eleven stores nationwide.
It also agreed to provide prepaid cards with TurboTax and QuickBooks products sold by software giant Intuit. NetSpend said the deal gives it access to millions of potential customers.
Last week, NetSpend reported that fourth-quarter revenue grew 17 percent over the same quarter a year ago to 89.7 million. Net income for the quarter increased 5 percent from a year ago to 10.1 million.
In recent years, NetSpend has faced increasing competition from banks. Chase has launched a prepaid card called Chase Liquid, while American Express has teamed with Wal-Mart to offer a prepaid debit card called Bluebird.
TSYS CEO Philip Tomlinson said in a written statement that the acquisition "allows us to meet our strategic goals of diversifying our business, being a more innovative payment solutions provider and expanding our role within an area of payments that is expected to grow at a 20 percent annual rate over the next four years."
TSYS, which has 2,000 bank clients around the world and business relations with more than 400,000 merchants, will allow NetSpend to accelerate its growth, Henry said.
"It's a fertile hunting ground for our salespeople, and opens the door for expansion," he said. "We had a company meeting with (Tomlinson), and he told everyone ... 'We don't want to change a thing; Just keep growing this business, keep doing what you're doing."
The purchase price equates to 16 per share, the companies said.
The deal was announced after the stock market closed Tuesday. NetSpend's stock closed at 12.29, down 40 cents, or 3.15 percent. The stock jumped 30.2 percent in after-hours trading to 16 a share.
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