Total System Services Inc., or TSYS, agreed to acquire NetSpend Holdings Inc., a provider of reloadable prepaid debit cards, for about $1.4 billion in cash.
NetSpend shareholders will get $16 for each share of the company they own, according to a statement today. Compared with NetSpend’s closing price of $12.69 on Feb. 15, the offer reflects a premium of about 26 percent.
TSYS may be betting on NetSpend’s growth prospects. The Austin, Texas-based company had more than 2.3 million active cards at the end of the year, and is “poised to capture a significant portion of this market,” Andrew Jeffrey, a SunTrust Banks Inc. analyst, said in a Feb. 14 note.
“The company focuses on increasing the average life of active cards by promoting and incentivizing the use of direct deposit, which bolsters customer retention and lifetime value,” Jeffrey wrote. “Netspend will enjoy several years of low-teens organic revenue growth while scaling its high fixed-cost processing platform.”
Spending on prepaid cards in the U.S. in 2011 totaled $186 billion, representing about 2.2 percent of $8.34 trillion in consumer purchases, and is projected to climb to $274.7 billion in 2016, according to the Nilson Report, a payments industry newsletter.
Revenue at NetSpend rose 15 percent in 2012 to $351.3 million, the company said in a Feb. 13 statement. The number of active cards with direct deposit increased 25 percent to 1.08 million as of Dec. 31 compared with 865,000 a year earlier.
NetSpend’s largest shareholder, New York-based private-equity firm JLL Partners Inc., will collect $349 million in the sale, according to data compiled by Bloomberg. It will post a more than fivefold return on a nearly six-year-old investment, regulatory filings show.
JLL injected $75 million in Skylight Financial Inc. in 2007, a debit-card supplier that NetSpend bought in 2008 in an all-stock transaction. The investment firm sold $37 million of its NetSpend shares in the company’s 2010 initial public offering, the filings show.
JLL said in a statement today that the annualized internal rate of return on its NetSpend investment will be about 34 percent, depending upon when the deal is completed.
Bank of America Corp. is advising NetSpend, while Houlihan Lokey is advising TSYS, the companies said in the statement.