Computer Services drew private equity, strategic interest in sale process – CEO

News Analysis 6 September

Computer Services drew private equity, strategic interest in sale process – CEO

  • Private Equity triumphed over strategics in CSI auction
  • CSI may pursue tuck-ins next year and larger acquisitions in 24 months

Computer Services [OTCCQX:CSVI] decided to evaluate strategic options, including a sale or an uplisting to the Nasdaq, after a board meeting in fall 2021, CEO David Culbertson told this news service.

Last month, the Paducah, Kentucky-based provider of end-to-end fintech and regtech solutions announced it is being acquired by Centerbridge Partners and Bridgeport Partners in an all-cash transaction for USD 58 per share, valuing CSI at approximately USD 1.6bn. The deal is expected to close in 4Q22.

CSI reached out to investment bankers in October 2021, Culbertson said. He said the seller commenced soliciting interest from financial sponsors as well as strategics late last year. Raymond James and Moelis are co-financial advisors to the company, and Nelson Mullins Riley & Scarborough is the legal counsel.

The company conducted a “thorough strategic review,” and the CSI board concluded the current transaction is in the best interest of its shareholders, said Steve Powless, CSI’s chairman of the board, in a press release announcing the sale.

The sale process saw Centerbridge emerge as a “clear leader” in the second round based on its offer, as well as the fact that it hired an industry consultant to better understand CSI’s business and place in the industry, the CEO explained. Bridgeport ultimately joined as a buyer of CSI because of its leadership in financial services and technology, founder Frank Martire said in the deal announcement press release, adding that he has “followed [it] closely for decades.”

Most private equity firms bid higher than strategics in the sale process, Culbertson said. Strategics already have the core technology, so adding CSI would help a corporate buyer primarily consolidate market share. He also pointed to limited cost synergies for a strategic buyer in areas like accounting, marketing and sales.

As a result, CSI ended up focusing primarily on PE investors and spent time in confirmatory due diligence with Centerbridge and Bridgeport toward the end, Culbertson said.

Goldman Sachs is financial advisor to Centerbridge, while Jefferies is advising Bridgeport, Culbertson said. Kirkland & Ellis is serving as legal counsel to Centerbridge, and Weil Gotshal & Manges is the legal counsel to Bridgeport. Aviditi Financial is capital markets advisor to Bridgeport

Acquisitions with support from new owners

CSI’s decision to delist from public markets will help it execute better on its acquisition strategy moving forward, the CEO said. After the take-private deal closes, the company will continue to be led by Culbertson, the press release noted.

M&A is expected to be on pause till the CSI sale closes, but its chief development officer will continue to look at targets, Culbertson said. The company, he said, is likely to look at acquisitions in 2023.

Attractive targets could be companies that solve regulatory compliance issues or manage how a customer accesses and interprets data, Culbertson said. Other attractive areas include fraud, cybersecurity and payments, though not the already well-served merchant processing segment, he added. 

In addition to domestic targets, CSI would consider acquisitions in Europe as the region appears to have more advanced technology in the fintech space compared to the US, he said.

CSI provides a cloud-based core banking solutions, as well as regulatory compliance, cybersecurity solutions and IT management and document distribution.

While target size is an important consideration as a public company, as a private company CSI will be more focused on revenues that could be generated from an acquisition, according to Culbertson. It could look at small tuck-in acquisitions that take less time to churn through and help bring complementary products to market quickly, he said.

Over the next “24 months or so,” CSI may do some larger, scalable acquisitions as well, Culbertson said. Centerbridge and Bridgeport have made it clear that there is capital available for transactions, he said. “Several hundred million wouldn’t scare me in the next 24 months if the right thing came along.”

CSI has nearly 2,600 customers, almost all of which are in the US. It has more than 1,200 employees.

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