Time to put money into the ATM?

BANGALORE (Reuters) - A $15 billion private equity bid for payments processor Fidelity National Information FIS.N may have come unstuck in May, but it did enough to whet the appetite for other potential deals in a financial technology industry slowly emerging from its worst-ever crisis.

ATM-makers NCR Corp NCR.N and Diebold Inc DBD.N and financial software and systems firms such as ACI Worldwide ACIW.O, Advent Software ADVS.O and Euronet Worldwide EEFT.O are all possible targets -- most likely for cashed-up private equity, but also on the radar of technology giants seeking to offer clients one-stop shop solutions.

The providers of software and systems to help banks carry out their day-to-day functions are seeing a pick-up in sales as financial institutions loosen their purse-strings.

And, after a steep drop in their share prices last year, they are trading at attractive valuations -- making them ideal takeover prey.

“There are a lot of inexpensive companies and a lot of capital looking to invest in private equity, so I think all these managements are vulnerable,” said Peter Zuger of Lee Munder Capital, co-manager of the Touchstone Mid Cap Value Fund.

Lee Munder makes a market in shares of both Fidelity National and Diebold.

NCR trades at just above 8 times forecast earnings -- a 20 percent discount to its peers, according to Thomson Reuters StarMine data. Diebold is a touch pricier at around 12 times expected 2011 earnings.

Speculation around NCR heightened in May when a filing showed Greenlight Capital, a hedge fund run by investor David Einhorn, had more than a 5 percent stake in the company.

NCR’s shares have risen 15 percent year-to-date, but are less than half their 2008 value, battered by the crisis and a large pension liability -- a factor that could deter tech firms.

“If there’s going to be some sort of buyout, I wouldn’t be surprised to see it come from private equity,” said Standard & Poor’s equity analyst Tom Smith.

Diebold, which rebuffed an approach by United Technologies Corp UTX.N in 2008, could see the diversified manufacturer return with another offer, some analysts said.


With Hewlett-Packard Co HPQ.N looking to have beaten off Dell DELL.O in an expensive battle for data storage firm 3PAR Inc PAR.N, investor focus may switch to IBM IBM.N, which has been building its presence in the financial technology space.

Analysts note IBM already has a marketing alliance with ACI Worldwide and owns ACI warrants, which could help tip the scales in favor of a deal.

Valued at around $670 million, ACI makes software to facilitate electronic payments, and counts financial institutions, retailers and payment processors, including Barclaycard BARC.L, Bank of America BAC.N and Canadian Imperial Bank Of Commerce, among its customers.

“IBM is already invested in ACI and is looking for ways to expand its hardware sales by selling software. It would be a good fit,” said D.A. Davidson analyst John Kraft.

IBM plans to spend $20 billion over five years to buy its way up the higher-margin value chain and shift away from increasingly commoditized hardware sales.

It paid $1.4 billion in May for Sterling Commerce, a specialist in secure transfer of e-documents like payroll and healthcare claims, and then bought marketing software firm Unica Corp UNCA.O for $480 million.

Another financial technology name attracting tech firms’ interest is Advent Software, whose products include portfolio management and accounting systems for investment management firms.

Transaction processors Euronet Worldwide Inc EEFT.O and Hypercom HYC.N may look equally attractive due to their low valuations, said Wedbush Securities' Gil Luria.

And Fidelity National remains under the spotlight.

“We continue to believe FIS would be an attractive take-out candidate, and view a reasonable valuation for late this year at around $37-$43 (a share),” said David Koning, an analyst at Robert W. Baird.

That kind of range could represent up to a 60 percent premium to Fidelity National’s latest price.

Reporting by Brenton Cordeiro and Saqib Iqbal Ahmed in Bangalore, Editing by Ian Geoghegan