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Heartland Payment Systems acquires TouchNet for $375 million

Purchase increases university presence, curbs DOE regulatory worries

Already among the ‘Top of the Charts’ in the payment processing realm, Heartland Payment Systems catapulted to Rock Star status in the campus payment world this morning, announcing that it has entered into an agreement to acquire TouchNet Information Systems, Inc., a Lenexa, Kansas-based integrated commerce solutions provider to higher-education institutions.

Rumors of TouchNet’s pursuit of a prospective buyer first surfaced early this Spring, with insider speculation suggesting that non-employee investors were seeking return on investments in the company. The purchase adds a client base of 600 colleges and universities to the Heartland portfolio, making TouchNet the largest acquisition for Heartland Payments Systems in the company’s history.

In addition to its more than 600 higher education clients, TouchNet serves better than six million students – nearly one-third of the total higher-education enrollment in the United States. When combined with Heartland’s existing portfolio of payments, loan servicing and other campus solutions, the acquisition of TouchNet makes Heartland the largest provider of integrated commerce solutions to the higher-education sector, according to the official company release.

The release tags the purchase price at $375 million, and notes that it is expected to add at least $0.30 per share in 2015. In addition, Heartland expects the transaction to add more than $60 million to the company’s 2015 net revenue. The transaction is expected to close in the third quarter of 2014, pending regulatory approvals and customary closing conditions.

Heartland will host a conference call on August 1, to discuss second quarter earnings and address questions regarding the acquisition.

The acquisition includes TouchNet’s software, customer base and existing employees, along with the company’s management team. TouchNet’s operations will continue to be based in Lenexa, Kansas, where company founder Dan Toughey says TouchNet’s existing 180 employees will remain.

The acquisition will complement Heartland’s existing Campus Solution business and enable them to offer a completely integrated commerce platform. “With the acquisition, Heartland can now offer campus business offices a comprehensive commerce solution that integrates the payment processing capabilities of Heartland into the U.Commerce payment system,” says Michael Lawler, president of the strategic markets group at Heartland Payment Systems. “Heartland Campus Solutions will have relationships with higher-education institutions small and large, which we believe provides entrée to expand all of our Campus Solutions products across this broad portfolio.”

Founded in 1989 as a fax and interactive kiosk developer, TouchNet found its niche in the 90s helping campuses handle payments to and from students and other constituents. The company’s flagship products include the U.Commerce framework that centralizes and administers electronic payments; the Payment Gateway transaction management system; and Bill+Payment that enables electronic student billing, refunds, deposits and tuition payment.

Curbing DOE doubts

Toughey was vocal throughout the Department of Education’s Negotiated Rulemaking process, which has left the campus card banking and financial aid refund delivery process in a state of confusion. Toughey campaigned against the practice of campus-sponsored accounts from banks and third-parties, arguing that institutions should not steer students toward a preferred account – otherwise known as the campus card or campus-endorsed account, sources say.

Toughey argued that the Department of Education should mandate a model that enabled electronic transfer to any account of the student’s choice provided it was not a campus-endorsed account. Not surprisingly, this “ACH anywhere” approach is the model that TouchNet provides for its campus clients.

In recent years, TouchNet has found itself embroiled in patent infringement lawsuits against financial aid distribution company Higher One. Some suggest this dispute led Toughey to support and even encourage the Department of Education review of campus-sponsored accounts.

While this position made the TouchNet founder unpopular with many vendors and institutions active in the campus card space, it also seemingly made his company an attractive safe harbor should the Department of Education’s regulations make campus-sponsored accounts unacceptable or less viable, sources say.

Regardless of ultimate outcomes from the DOE process, TouchNet revenues and client base will certainly bolster Heartland’s campus business in a big way. But there is an additional synergy that makes the combination unique. Heartland’s core business is to actually process many of the transaction categories that TouchNet helps facilitate on campus. Together the two entities should be more profitable by keeping the sizable processing fees ‘within the family,’ as opposed to paying another entity or processor to handle that piece of the business.

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