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D+H Announces Agreement to Acquire Fundtech, a Leading Global Payments and Transaction Banking Solutions Provider
TORONTO, March 30, 2015 /PRNewswire/ - DH Corporation ("D+H") (TSX: DH) today announced that it has entered into a definitive agreement to acquire Fundtech, a leading provider of global payments solutions to banks worldwide, for cash consideration of US$1.25 billion (the "Acquisition"). "The complexity of today's global payments infrastructure, proliferation of channels, and an increasing desire for real-time payments is driving demand for payment solutions that allow banks to streamline payment processing while providing a more sophisticated and comprehensive view of liquidity management across various currencies and geographies," said D+H chief executive officer Gerrard Schmid. "The acquisition of Fundtech puts D+H at the forefront of these trends globally, providing us with a market-leading software platform with established scale in mission-critical payment technology. It also delivers capabilities that are relevant to our existing customer base in Canada and the U.S. while making D+H more relevant to global financial institutions and large U.S. banks." Overview of Fundtech Headquartered in New York City, Fundtech is a leading provider of financial technology to banks and corporations of all sizes in the Americas, EMEA, and APAC regions with approximately 1,500 employees and 19 offices worldwide, including development centers in the United States, India, Israel, Switzerland and the UK. Fundtech's solutions are mission-critical to the day-to-day operations of banks and corporate clients. Fundtech offers a comprehensive line of transaction banking solutions including global and domestic payments solutions, financial messaging, corporate cash and liquidity management and merchant services. Fundtech has approximately 1,200 clients, including global money center banks, mid-sized banks and credit unions, non-bank financial institutions, central banks and corporates. Fundtech was founded in 1993 and acquired by Chicago-based private equity firm GTCR in 2011. Fundtech's 2014 Adjusted revenue was US$263 million(1) ($291 million) and Adjusted EBITDA(1) was US$68 million ($75 million), representing growth of 9% and 15% over 2013, respectively. "I'm very proud of the company and culture that we have built and believe that D+H's client-centric approach and FinTech expertise represent a great strategic fit for us," said Reuven Ben Menachem, founder and chief executive officer of Fundtech. "Fundtech joining D+H will create new opportunities for our employees and clients alike." Financially, the combination of D+H and Fundtech would result in:
Market Opportunity D+H's management believes that the estimated annual IT spend by banks for all of the markets in which Fundtech participates is approximately US$5 to US$6 billion. The market opportunity for global payments technologies is among the most attractive in the FinTech industry today. Market penetration of these solutions is still in the early stages which creates significant opportunities for companies like a combined Fundtech and D+H that have the scale, proven technology solutions, strong banking domain knowledge and trusted client relationships to compete in this market. "We have made significant investments in our platforms over the last several years to build competitive, best-of-breed solutions, and we have seen great momentum as a result. We wrapped up a record sales year in 2014, and our customers have been extremely positive about Fundtech's solutions and the value they bring to their business," added Ed Ho, president and chief operating officer of Fundtech. "Given the complementary nature of our solutions, there is an opportunity for Fundtech to leverage D+H's established client base to continue to drive growth. We look forward to joining D+H and to growing our business together." "We're very excited about Fundtech and believe that this transaction will allow D+H to further strengthen our value proposition with relevant technology solutions that appeal to our existing clients and provide us with access to new markets and geographies," concluded Schmid. "With a combined base of about 8,000 clients worldwide, D+H and Fundtech will have global scale, a comprehensive portfolio of innovative technology solutions and capabilities to continue to execute on D+H's transformation as a global FinTech player." Acquisition Timing Closing of the Acquisition is subject to approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 in the U.S. and other customary conditions and is expected to occur during the second quarter of fiscal 2015. Acquisition Financing In conjunction with the Acquisition, D+H has entered into an agreement with a syndicate of underwriters, pursuant to which they have agreed to purchase, on a bought deal basis, from D+H and sell to the public (the "Offering") (i) 16,500,000 subscription receipts (the "Subscription Receipts"), at a price of $37.95 per subscription receipt, for gross proceeds to D+H of $626,175,000, and (ii) $200,000,000 of 5.0% extendible convertible unsecured subordinated debentures (the "Debentures", and together with the Subscription Receipts, the "Securities"), for aggregate gross proceeds to D+H of $826,175,000. The net proceeds of the Offering will be used by D+H to fund a portion of the purchase price for the Acquisition. The Securities to be offered have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the U.S. Securities Act and applicable state securities laws. This news release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Securities in the United States or any jurisdiction in which such offer, solicitation or sale would be unlawful. Concurrently with the announcement of the Acquisition, D+H obtained a commitment letter from The Bank of Nova Scotia, Royal Bank of Canada and Canadian Imperial Bank of Commerce (the "Credit Facility Underwriters") for secured credit facilities in an aggregate amount of $1.858 billion and US$592.62 million (collectively, the "Credit Facilities"), $550 million and US$267.62 million or the Canadian dollar equivalent which, in aggregate, replace D+H's existing (i) revolving credit facility, and (ii) non-revolving term credit facility, respectively. The Credit Facility Underwriters, in their capacity as co-lead arrangers of the Credit Facilities, intend to syndicate the Credit Facilities to other financial institutions prior to the Acquisition closing. The Credit Facilities are subject to completion of definitive documentation which shall contain customary representations and warranties and restrictive covenants, including compliance with certain financial ratios, a Total Net Funded Debt to EBITDA ratio for covenant calculation purposes and an interest coverage ratio, and restrictions on further borrowing, acquisitions and dispositions, restrictions on granting liens and other restrictions. Credit Suisse acted as D+H's financial advisor on the transaction. Conference Call and Webcast D+H will conduct a conference call and live webcast on March 30, 2015 at 4:15 pm (EDT). The call will be hosted by chief executive officer Gerrard Schmid and chief financial officer Karen H. Weaver. An accompanying slide deck will be posted in the investor section of dh.com shortly before the call. To access the call:
A replay of the call will also be available until April 13, 2015. To access the replay:
The link to the webcast and an accompanying slide presentation will be posted in the Investors section of the D+H website under Events and Presentations at http://www.dh.com/investors/events-and-presentations/conference-calls. About D+H D+H (TSX: DH) is a leading financial technology provider the world's financial institutions rely on every day to help them grow and succeed. Our lending, payments and enterprise solutions are trusted by nearly 7,000 banks, specialty lenders, community banks, credit unions and governments. Headquartered in Toronto, Canada, D+H has more than 4,000 employees worldwide who are passionate about partnering with clients to create forward-thinking solutions that fit their needs. With annual revenues of more than $1 billion, D+H is recognized as one of the world's top FinTech companies on IDC Financial Insights FinTech Rankings and American Banker's FinTech Forward ranking. For more information, visit dh.com. Caution Concerning Forward Looking Statements Certain statements contained in this news release that are not current or historic factual statements constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Statements concerning D+H's objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and the business, operations, financial performance and condition of D+H are forward-looking statements. The words "pro forma", "believe", "expect", "anticipate", "estimate", "intend", "may", "will", "would" and similar expressions and the negative of such expressions are intended to identify forward looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are subject to important assumptions, including the following specific assumptions: the ability of D+H to meet its targets with respect to Adjusted revenues, EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income, Adjusted net income per share, free cash flow and Debt to EBITDA Ratio; the ability of D+H to generate sufficient cash flow to maintain its current dividend level and also reduce debt; general industry and economic conditions; changes in D+H's relationship with its customers and suppliers; pricing pressures and other competitive factors; the anticipated effect of the Acquisition on the financial performance of D+H; D+H's belief that there is increased demand for next-generation global payments solutions; the inability of legacy systems of financial institutions to comply with the increasingly stringent regulatory requirements thereby driving significant investment in third-party software; financial institutions allocating an increasing percentage of IT spend on payment hubs through third-party providers; Fundtech having one of only a few out-of-the-box product offerings in the payment hub and cash management industries; and the ability of D+H to achieve the expected benefits of the Acquisition, including (i) further broadening and diversifying D+H's client base and operational capabilities; (ii) accelerating D+H's global expansion strategy with meaningful exposure to markets outside North American; (iii) diversifying D+H's business in terms of product offerings as a result of the Acquisition; (iv) broadening D+H's sources of long-term recurring revenues following the Acquisition Closing; (v) the benefits of the Acquisition for D+H from an accretion and cash flow perspective (each of which may be impacted by the realization and timing of any potential synergies and the operating performance of D+H and Fundtech); (vi) the ability of D+H to successfully integrate Fundtech with D+H's existing business; (vii) D+H's expectations regarding enhanced revenue generation through cross-selling opportunities; (viii) D+H's expectation regarding minimal ongoing capital investment and strong free cash flow conversion rate, which D+H expects will enable deleveraging, support dividend payments and fund investment for future growth; and (ix) D+H's expectation that the Acquisition will be accretive in the first twelve months following closing. D+H has also made certain macroeconomic and general industry assumptions in the preparation of such forward-looking statements. While D+H considers these factors and assumptions to be reasonable based on information currently available, there can be no assurance that actual results will be consistent with these forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of D+H's business, Fundtech's business or developments in D+H's industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Risks related to forward-looking statements include, among other things, challenges relating to the integration of the Fundtech Business with D+H's existing business; failure to realize the anticipated benefits of the Acquisition; dependence on key personnel; potential liabilities associated with the Acquisition; D+H having a substantial amount indebtedness after giving effect to the Acquisition; no assurance of the future performance of the Fundtech Business; possibility that historical and pro forma combined financial information may not be representative of our results as a combined company; reliance on information provided by Fundtech; the Acquisition not closing on the terms negotiated or at all; changing government regulations in the financial services industry; inability to accurately predict and respond to market developments or demands; political, economic and military conditions in Israel and the Middle East as a whole; failure to comply with the FFIEC consent order; risk associated with marketing and the distribution of Fundtech's products abroad; inability to expand Fundtech's development and support organization; challenges relating to the uncertainty and length of a sales cycle and the expenditure of significant resources in connection therewith; market acceptance of Fundtech's competitors' products and bank reliance on internally developed products; inability of Fundtech to adequately protect its proprietary rights in its internally developed technology; fluctuations in the value of world currencies; dependence on customer retention and renewals; potential clients electing not to replace their legacy computer systems; the availability of certain tax benefits and government grants; increased pricing pressures and competition which could lead to loss of contracts or reduced margins; the ability to comply with regulations; the ability to deliver products and services in line with the changes in the banking and financial services industry; the ability to avoid inherent risks in the technology industry related to cyber-security threats and breaches; dependence on a limited number of large financial institution customers and dependence on their acceptance of new programs; declines in the use of personal and business cheques; strategic initiatives being undertaken to grow D+H and Fundtech's businesses and increase profitability; stability and growth in the real estate, mortgage and other lending markets; the ability to generate cash to invest in the business and at the same time be able to pay dividends and debt repayments; as well as general market conditions, including economic, foreign exchange and interest rate dynamics. Given these uncertainties, investors are cautioned not to place undue reliance on such forward-looking statements. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions, and D+H does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change except as required by applicable securities laws. All of the forward-looking statements made in this new release are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, D+H. Non-IFRS and Non-U.S. GAAP Financial Measures This news release makes reference to certain non-IFRS financial measures, in the case of D+H, or non-U.S. GAAP financial measures, in the case of Fundtech. These non-IFRS and non-U.S. GAAP financial measures are not recognized measures under IFRS and U.S. GAAP, as applicable, do not have a standardized meaning prescribed by IFRS or U.S. GAAP, as applicable, and are therefore unlikely to be comparable to similar measures presented by other publicly traded companies, and should not be construed as an alternative to other financial measures determined in accordance with IFRS and U.S. GAAP, as applicable. Rather, these financial measures are provided as additional information to complement IFRS and U.S. GAAP financial measures by providing further understanding of operations from management's perspective. Accordingly, non-IFRS and non-U.S. GAAP financial measures should never be considered in isolation nor as a substitute to using net income as a measure of profitability or as an alternative to the IFRS consolidated statements of income or other IFRS or U.S. GAAP statements. Management presents non-IFRS and non-U.S. GAAP financial measures, specifically Adjusted revenues, EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income, Adjusted net income per share, free cash flow and Debt to EBITDA Ratio as it believes these supplementary disclosures provide useful additional information related to the operating results of D+H and uses these measures of financial performance as a supplement to the consolidated statements of income of D+H and Fundtech. The definitions of the non-IFRS and non-U.S. GAAP measures contained in this news release are as follows: (i) "Adjusted revenues" is used as a measure of performance which eliminates the impact of applying acquisition accounting on the acquisitions of HFS and Fundtech. Adjusted revenues are also used in calculating Adjusted EBITDA and Adjusted EBITDA margin. Upon acquisition, the acquired deferred revenues balances were adjusted to reflect the fair value based on estimated costs of future delivery of the related services. These fair value adjustments to deferred revenues, recorded as of the acquisition date in accordance with the business combination accounting standard, reduce revenues recognized post-acquisition under IFRS. Adjusted revenues exclude these acquisition accounting effects. Management believes that Adjusted revenues facilitates meaningful comparisons of pre-acquisition and post-acquisition revenues; (ii) "EBITDA" is defined as income from continuing operations excluding interest, taxes, depreciation and amortization, other non-cash finance charges and fair value adjustments of interest-rate swaps which are directly related to interest expense, income from investment in an associate, gain on re-measurement of the previously-held equity interest in the Compushare, Inc. investment, and gain on sale of assets. EBITDA is also described as income from operating activities before depreciation and amortization in DH Corporation's consolidated statements of income; (iii) "EBITDA margin" is calculated as EBITDA divided by revenues; (iv) "Adjusted EBITDA" excludes: (a) acquisition-related expenses such as transaction costs, business integration costs and certain retention and incentive costs incurred in connection with acquisitions; (b) charges such as corporate development costs related to strategic acquisition initiatives; (c) with respect to Fundtech only, costs incurred in connection with cost-realignment initiatives; (d) costs incurred in connection with implementing an enterprise resource planning platform and (e) with respect to Fundtech only, fair value adjustments of derivative instruments and certain foreign exchange gains and losses, all of which are not considered to be part of the normal course of operations. Adjusted EBITDA also excludes effects of acquisition accounting on the fair value of deferred revenues and deferred costs acquired from the acquisitions of HFS and Fundtech; (v) "Adjusted EBITDA margin" is calculated as Adjusted EBITDA divided by Adjusted revenues; (vi) "Adjusted net income" is used as a measure of internal performance similar to net income, and is calculated by adjusting for the impacts of certain non-cash items and certain items of note on an after-tax basis. These adjustments include after-tax impacts of: the effects of acquisition accounting on fair value of deferred revenues and deferred costs acquired from the HFS and Fundtech acquisitions; acquisition-related and other charges; gains and losses on sales resulting from sale of non-strategic assets; expenses associated with cost-realignment initiatives; discontinued operations; all of which are not considered to be part of the normal course of operations; and, certain non-cash items such as amortization of intangible assets from acquisitions, gain on re-measurement of the previously-held equity interest in Compushare, Inc., non-cash finance charges such as deferred financing fees associated with D+H's previous credit facilities written off upon the refinancing in connection with acquisitions, amortization of other deferred financing charges, accretion of convertible debentures, fair value adjustments of interest-rate swaps, certain foreign exchange gains and losses, and tax effects of these items and tax effects of acquisitions; (vii) "Adjusted net income per share" is calculated by dividing Adjusted net income for the period by the weighted average number of shares outstanding during the period. (viii) "free cash flow" is calculated using cash generated from operating activities, less cash paid for interest, income taxes, capital expenditures and dividends; and (ix) "Debt to EBITDA Ratio": prior to December 2, 2014, the Corporation was required to comply with Total Funded Debt to EBITDA ratio for covenant purposes. Effective December 2, 2014, the Corporation's previous credit facility was amended and pursuant to the terms of the existing credit facility, the Corporation is required to comply with Total Net Funded Debt to EBITDA ratio. Collectively these two ratios are referred to as "Debt to EBITDA ratio". Total Net Funded Debt, effective December 2, 2014, includes all of the Corporation's outstanding indebtedness, amounts capitalized under finance leases, bankers' acceptances and letters of credit and is net of cash, in North American bank accounts, up to a maximum aggregate amount of $40 million. Convertible debentures are excluded from the Net Debt. Total Funded Debt, applicable prior to December 2, 2014, was calculated similar to above, except that cash was not netted. EBITDA, for the purposes of both ratios noted above, is calculated on a twelve-month trailing basis as net income plus: interest expense, depreciation and amortization, income taxes and capital tax expenses, other non-cash expenses and certain restructuring and transaction expenses, to the extent expensed in the consolidated statements of income. Other add-backs to net income include certain deferred revenue changes and impacts of acquisition accounting adjustments to revenues with respect to the HFS acquisition. For further details on these financial measures, see D+H's most recent Management Discussion and Analysis for the fiscal year ended December 31, 2014, a copy of which is available on SEDAR at www.sedar.com. See the Appendix to this news release for non-IFRS and non-U.S. GAAP reconciliations. __________
SOURCE DH Corporation 
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