n order to stay competitive in an industry where portfolio acquisition drives growth, a company must balance its commitment to servicing its own line of business with seeking out other areas for development. Establishing partnerships with organizations beyond a company's own market segment enables even further expansion.

Bankcard acquirer TransFirst Holdings, Inc. said that by adopting this strategy, it has grown to be the third largest privately held processor in the United States, not associated with a bank. The company has closed four significant acquisitions since mid-2001 and has partnered with several companies in growing vertical markets. "We'd actually like to close more acquisitions," said Andrew Rueff, Vice President of Mergers and Acquisitions for TransFirst. "Our primary objective in completing acquisitions is to fully understand the strategic direction of companies we partner with and to make sure that they are a good, strategic fit for the TransFirst family of companies.

"We believe that this discipline will create the most value for both our customers and our new strategic partners."

In June 2001, TransFirst acquired Money Tree Services, adding 3,300 merchants and $350 million in processing volume; in October 2002, it acquired BA Merchant Services, Inc., adding in excess of $3 billion in annual sales volume-approximately 10% of the total agent bank merchant processing market at the time.

Several executives who had been part of the Bank of Boulder's bankcard processing division founded TransFirst in 1995 as ACS Merchant Services, Inc. When they decided to venture out on their own, they sought funding for a start-up in the bankcard processing industry with a particular focus on community banks.

The company received its initial funding from Dallas-based Affiliated Computer Services Inc. and was later recapitalized under the name of TransFirst in 2000 by GTCR Golder Rauner LLC's GTCR Fund VII. GTCR, a private equity-investment firm, has been a long-term strategic partner of TransFirst.

TransFirst received a commitment of more than $130 million from GTCR. Since then, and as a result of GTCR's committed capital, the company has gained access to up to $450 million for growth and acquisitions, which opens up opportunities for it to pursue multiple acquisitions and joint ventures. In its first year of business, between 1995 and 1996, TransFirst tripled its processing volume and signed 50 new agent banks.

TransFirst is pursuing its aggressive growth strategy in order to expand its customer and employee base through portfolio acquisitions and to obtain new technologies and expertise in various vertical markets, Mark Travis, Senior Vice President and CFO of TransFirst said. He also said they are very selective about the companies they purchase.

"TransFirst is a company that I would call highly disciplined in its approach to acquisitions," Travis said. "There are a significant number of criteria that the target company must meet in order for us to close a deal. That really drives our strategy in focusing on high growth verticals."

TransFirst's core business is credit card processing (supporting Visa, MasterCard, American Express, Discover, Diners Club and JCB International), but the company also offers products and services such as debit card processing, check verification, Internet transaction processing, EBT, point-of-sale equipment and PC software, gift cards, check conversion and online reporting.

It also works with ISOs to set up third party software and equipment packages for handling merchant transactions.

Historically, TransFirst has always been focused on working with agent banks and ISOs that service small- to mid-sized markets, and this is still its largest business sector. Rueff refers to these as the company's "bread and butter." But TransFirst also is interested in other high growth vertical markets such as card-not-present transactions, bill payments and the healthcare and government sectors.

In January 2002, it acquired PulseCard Inc., adding $500 million in annual processing volume and vertical expertise in the health services transaction processing industry. With this acquisition, TransFirst created TransFirst Health Services, a TransFirst subsidiary, which serves this market exclusively.

In March 2002, the company acquired DPI Merchant Services (DPI), adding $850 million in annual processing volume and expertise in the card-not-present and e-commerce transaction processing industry. DPI specializes in writing credit card merchant accounts in the retail, Internet, direct response, catalog, and home-based and other direct marketing merchants.

In addition, TransFirst formed several key partnerships such as with eLevel, Inc. and Bell & Howell to break into the "e-government" and electronic bill presentment and payment (EBPP) sectors. TransFirst's subsidiary DPI works with eLevel to provide transaction processing services to users of eLevel's CityCentric, a public Web portal that enables local governments to be open for business 24/7/365 by offering communities online services.

Bell & Howell is using TransFirst's payment processing services for its EBPP solution called eMessaging eXpress.

TransFirst also has its eye on the recent trend in selling value-added products, which offer potential cross sell opportunities for its agent bank customers.

"The value-added reseller sector is a market that companies like TransFirst have been servicing for some time, and we believe that it's going to continue to be an attractive sector in the industry," Rueff said. "Merchant processing sold as a singular product has become very common and competitive in the industry; in the future, it makes a lot more sense for it to be sold to merchants as an integrated offering."

For instance, an integrated package might combine a merchant-processing product with an accounting software product, or be included with an inventory or cash register management product.

"It makes a lot of sense to secure the merchant in a much broader way for a longer period of time than just with merchant processing, which is typically only a 30-day contract offered by a lot of different people off the street," Rueff said. "Integrated offerings make it much harder for the clients to move away."

Its strategy appears to be working. Today, TransFirst is a leading provider of transaction processing services and payment technologies to banks, merchants and ISOs/MLSs. TransFirst was ranked number 30 in the GSQ Billion Dollar Bankcard Acquiring Report in 2001 and moved up ten spots to number 20 in 2002.

The company employs approximately 200 people and has expanded its offices to four locations: Dallas; Omaha, Neb.; Overland Park, Kan.; and Superior, Colo.; its sales volume was more than $8.5 billion in 2002.

TransFirst offers its customers several different levels of support backed by a company motto it calls "Amazing Customer Service." It assigns a team of professionals to each client-from an account manager, to product and technical advisors, to a help desk that is open 24/7-and a credit/risk management department, chargeback department, various training and support programs and monthly and real-time online and fax-based reporting.

"We have three customers-the merchant that we support on a daily, hourly, minute-by-minute basis; bank customers who have also referred many of those merchants; and ISOs," Travis said.

TransFirst will help its customers tap into their own customer base to seek out new partners and revenue opportunities through a new program the company calls Merchant Mining. In working with new banks or alliance partners, TransFirst examines their channel of branches or banks and helps them identify business customers who are also account holders or users of other products of the bank; they then solicit, or "mine," them for merchant processing services.

"We find that banks get really excited about this because its really a hidden revenue opportunity for them at a time when banks really need to focus on earnings," Rueff said.

In July 2003, eight state banking associations-Colorado, New Jersey, New York, North Carolina, North Dakota, Ohio and Virginia-endorsed TransFirst as a preferred agent bank processing company.

TransFirst also works closely with the ISO/MLS sales channel. The company said much of its success has come through referrals from ISO/agent bank partners and its merchant customers. TransFirst is also an active member of the Electronic Transactions Association (ETA).

In its compensation structure for ISOs/MLSs, the ISO/Agent revenues earned (the markup above the buy-rate) are paid in the form of residuals. TransFirst pays the ISO/Agent via the Automated Clearing House system (ACH) on the tenth of the month for the previous month's earnings. TransFirst said it has done this since 1995.

TransFirst said many opportunities for growth exist with its ISO partners. By partnering with TransFirst, ISOs and agents are offered valuation and equity opportunities in case any of TransFirst's partners decide to sell their businesses.

Through its partnerships with a number of ISOs and more than 520 banks, TransFirst processes for nearly 70,000 merchants. The company's vision is to continue its success in bankcard acquiring and continue acquiring the right companies in strategic market segments.