Payments technology services company Jack Henry & Associates is aiming to revive its hunt for acquisitions this year, with lots of newly discounted targets thanks to the public stock market's downturn.
Jack Henry CEO David Foss gave that outlook last week while he was discussing the Monett, Missouri-based company’s quarterly earnings report. “I'm pretty optimistic on calendar (year) ‘22 as a year where Jack Henry can get back into the game, as far as M and A,” Foss said on the May 4 conference call with analysts, referencing mergers and acquisitions.
Jack Henry, which sells its technology services to banks and credit unions as well as other companies, might have pursued six acquisitions annually 15 years ago to absorb innovative technologies, but activity ebbed as prices for companies climbed.
“In the past couple of years, it's been almost impossible to get a deal done because valuations were crazy,” Foss said. “So, we've focused heavily on organic development efforts.” One of those projects has been overhauling the way it sells services to customers to unbundle them and make them available on the public cloud, the company said in a February press release.
Targets for the publicly-traded Jack Henry now include companies that had completed an initial public offering recently, but have seen their stock prices drop in the market’s downturn, and also those that had been planning to go public, but missed that window of opportunity before the markets soured.
With respect to the former, Foss said: “Several companies went public last year and probably, technically shouldn't have gone public,” he opined on the call. “Now, their valuation has dropped significantly. They have shareholders that are kind of wondering what the future looks like.”
Even more attractive to Jack Henry may be the ones that missed the chance to sell stock in an IPO. “There are a lot of companies in our space, who were on the sidelines, who were kind of prepping to go public, given the frothiness of the market, and now that is all stopped,” he said. For those companies now considering private capital instead, they might “find a really nice partner like Jack Henry — I think you would look seriously at talking to Jack Henry.”
He highlighted the company’s past ability to integrate acquisitions and noted that it has been a “disciplined buyer,” meaning that it was unlikely to be lured into overpaying for an acquisition when prices soared in recent years. Foss made the comments in response to an analyst question about potential acquisitions.
As Jack Henry is becoming more acquisitive again, it doesn’t have as many product holes to fill so it’s most likely to buy businesses that it can connect to one of its existing operations, the CEO said.
“Most of the acquisitions we look at are things that we can connect to something we already have, and create that one plus one equals three type scenario for for Jack Henry customers,” Foss said.
For the first three months of the year, which is the company's fiscal third quarter, Jack Henry's net income rose 19% to $84.7 million over the year-ago period while revenue increased 10% to $478.3 million, the company said in its earnings release. The company says it provides transactions processing, automation of business processes, and information management services for about 8,400 financial institutions and corporate entities.