Moneris US, a wholly owned subsidiary of Canada's largest processor Moneris Solutions Inc., signed an agreement to purchase Eureka, Calif.-based processor Humboldt Merchant Services LP.
The deal is subject to regulatory approval by the Federal Reserve but is expected to close before the end of 2008, at which time Moneris will acquire Humboldt's portfolio of over 18,000 merchants, which accounts for an annual processing volume of $2.5 billion.
HMS and Moneris US agree the acquisition is in the best interests of both parties.
"We have been looking to strategically grow our business from a distribution standpoint, from a technology standpoint and strategic segment standpoint," said Greg Cohen, President, Moneris US. "And this hits on a couple of those levels.
"HMS has a tremendous West Coast presence," Cohen noted. "We've got a huge East Coast and Midwest presence. They've got an ISO channel. We don't have an ISO channel. ... There's a lot of synergy here between the two organizations."
Ken Musante, President of HMS, said this is "extremely positive. We're being purchased by an organization that not only values our culture, it values our risk profile, it values our service areas, it values our merchant base. So they very much want to continue the delivery channels that we have out here." Cohen believes the companies have compatible technologies and platforms they can leverage to create a "best of breed" payment solution.
According to Musante, the companies started discussions in May 2008 when the financial situation of HMS's parent company - First National Bank of Nevada (operating as First National Bank of Arizona in that state) and its California-based affiliate First Heritage Bank of Newport Beach N.A. - began deteriorating.
In July 2008, the U.S. Office of the Comptroller of the Currency declared First National Bank Holding Co. - the owner of the two banks - insolvent, and the Federal Deposit Insurance Corp. was named receiver. The FDIC then approved Mutual of Omaha Insurance Co.'s purchase of First National's assets. (For more information, see "HMS' parent sold," The Green Sheet, Aug. 25, 2008, issue 08:08:02.) HMS' investment firm Sandler O'Neill initiated the contact with Moneris US. "When we found out that it was available, and obviously everybody knows the history of the bank, it was something that we jumped at," Cohen said.
Since both organizations have their roots in banks - HMS was originally owned by Humboldt Bank, and Moneris is owned by the Royal Bank of Canada and the Bank of Montreal - they operate similarly.
"I think any time you do an acquisition of significant size, culture is extremely important," Musante said. "And, if you don't have a meeting of the minds as to the culture, the acquisition won't be successful."
Musante adopted the phrase of a colleague in describing the cultural similarities between the two businesses. "There's a Middle America work ethic within both organizations," he said.
Cohen acknowledged HMS' workforce as being instrumental in Moneris US' future plans. "We need more and more talent to help execute on those plans," he said. Cohen stressed the HMS name will not disappear. "It is a solid brand," he said. "And in certain segments, that brand has a lot of value attached to it. So, the Humboldt brand will live on forever."
Musante said HMS will begin converting its sponsorship from First National Bank of Nevada to Harris Bank - the Chicago-based bank to which Moneris US is affiliated. As part of that conversion, HMS will migrate its merchant portfolio and registered ISO partners to Moneris US. Musante expects his role at HMS within the larger organization of Moneris US to change, but he will continue to lead the HMS team.
"There's certainly going to be changes and we're going to welcome and expect those changes," he said. "But even before the purchase, things were changing every day and every month. Our hope and expectation is that we're going to be making these changes for the betterment of our customers, the betterment of our business partners, the betterment of the company as a whole."
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