ACI Breakup Could Deter Starboard

A company follower suggested the payments processing company’s board might need to consider breaking up or selling the company down the road if a new CEO is not successful at accelerating revenue growth.

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While ACI Worldwide Inc. (ACIW) faces pressure from Starboard Value LP to sell itself, at least one company follower said the payment tech company could look to shed its online bill-pay business as part of a breakup to mollify the recent agitation.

“If [bill pay] were spun off debt free, it could pursue tuck-in acquisitions and generate an overall growth rate that would likely lead to a similar multiple accorded to some of the higher-growth names in the space,” said Peter Heckmann, managing director at D.A. Davidson & Co.

Heckmann said the majority of ACI’s business is software, which has high margins and relatively low growth. However, he argued that its online bill-pay business, appears to have a more interesting growth outlook, and is most likely to be separated into a free-standing, publicly-traded company.

The comments come after Starboard issued a presentation arguing Naples, Fla.-based ACI should integrate key units and consider selling to a strategic or private equity firm. The hedge fund pointed out that ACI trades at a discount to its peers, including FIS Global (FIS) and Jack Henry & Associates Inc. (JKHY).

Starboard notes in its presentation that Jack Henry trades at an enterprise value of 20.6 times 2021 consensus forecast for Ebitda, while FIS trade at 17.2 times 2021 consensus forecast for Ebitda. Meanwhile, ACI is trading at an enterprise value of 13.1 times 2021 consensus value for Ebitda.

D.A. Davidson suggests through a rough sum of the parts analysis that ACI’s businesses could cumulatively trade in the low $40 per share range, up from the company’s current share price of about $31.03 a share and market cap of about $3.6 billion.

While ACI’s bill-pay unit could be attractive as a spin-off and subsequent acquirer, the company’s low-growth, high-margin payment-switching software business, which would remain in a spin-off, is also a relatively unique asset, Heckmann added.

“There isn’t another company that comes close to the size and geographic scope of ACI that offers to license payment automation software to banks, processors, country networks and large merchants,” he said.

“One business could be the slower growth software company and bill pay could be the faster growth business, which has the opportunity, with a few acquisitions, to get to low-teens top line growth,” Heckmann said.

Some smaller deals could emerge, too. Heckmann said ACI might decide that its corporate digital banking unit, which develops software for banks and generates about 6% of revenue, is non-core. ACI’s digital banking unit competes with Q2 Holdings (QTWO) and Bottomline Technologies Inc. (EPAY)

“Divesting could help a bit but it won’t have a major impact on the company’s growth trajectory or margins,” he said.

While a breakup of the company could be in the cards, a sale of all or part of the business is a possibility, as well, especially if CEO Odilon Almeida, who joined in January, is not successful at executing growth initiatives.

Strategics including FIS Global, MasterCard Inc. (MA) or Visa Inc. (V) as well as Vista Equity Partners’ London-based FinTech conglomerate Finastra, and other PE shops are among the potential buyers, company watchers have speculated.

Advent International Corp., which has made payment-industry acquisitions, is another potential PE buyer for all or part of ACI. At least two ACI people have connections to the PE firm. Relationship mapping service BoardEx, a sister company of The Deal, notes that ACI’s recently-installed CEO, Almeida, was an operating partner at Advent between 2019 and February 2020. Also, ACI director Pamela Patsley was an operating partner at Advent previously.

Outside of consolidation efforts, Starboard is pushing ACI to integrate its bill-pay unit with Speedpay, which it acquired in 2019 to extract “significant cost savings.” It also wants the company to reallocate R&D spending.

Heckmann noted that critics have argued that ACI has historically over-allocated R&D and marketing dollars to all of its products, rather than concentrating on the areas with the best long-term growth potential. It is likely that under the oversight of Almedia, ACI will allocate higher investments to real-time payments, E-commerce, and online bill-pay, he said.

Expect to learn more at ACI’s investors day, Nov. 10.

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Ronald Oral
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