The payment processor Vantiv has agreed to buy Mercury Payment Systems LLC for $1.65 billion to expand its services for cloud-based payments integrated into other technology, says Vantiv president and CEO Charles Drucker.

Mercury Payment, currently majority-owned by technology investor Silver Lake, provides payment software embedded into point of sale applications. Vantiv expects to close its deal for Mercury during the second quarter of 2014.

Durango, Colo.-based Mercury features a network of more than 3,000 point-of-sale software developers and dealers serving small and medium-sized businesses across the U.S. and Canada. 

Vantiv, of Cincinnati, Ohio, expects the transaction to add one to two percentage points to its net revenue per year, Drucker said during a May 12 conference call an hour after the companies announced the deal. News of the deal leaked earlier the same day in a Bloomberg Newsreport.

In 2013, Mercury generated net revenue of $237 million, growing by 17% year-over-year, and adjusted EBITDA of $93 million, growing by 23% year-over-year, Drucker says.

Mercury was an appealing company to Vantiv because integrated payments will potentially deliver 30% of payments volume by 2017, Drucker says. Vantiv doesn't foresee changing much about Mercury's integrated payment technology, Drucker adds.

"The key to this is taking Mercury's model and continuing to allow it to grow," Drucker says. "But there will be synergy opportunities for us because of our scale and payment processing capabilities."

In some cases, the companies will take advantage of "the best of both worlds" by combining their services, such as EMV smart card technology and gift card or loyalty programs, Drucker adds.

The Mercury acquisition, in addition toVantiv's purchase of Element Payment Serviceslast year to bolster e-commerce services, will build Vantiv’s distribution channels, Drucker says. Mercury's distribution provides strength in the small to midsize business market, he adds.

Vantiv and Mercury will parlay the strengths of each company in its pursuit of other payment opportunities in the future.

"We have presence in many verticals within the broad category of retail," says Mercury CEO Matt Taylor.

"Mercury typically has short-term, non-exclusive contracts with most dealers and developers, but [doesn't] rely on those to build loyalty in the network," Taylor adds. "We rely on the services and support we provide and continuing to differentiate ourselves in the offerings."

Vantiv was particularly drawn to Mercury because its "products, features and functions really wrap around the developers," Drucker says. "What really impressed me was the level of client service and follow through, and that's what clients look at today."

Drucker calls the addition of Mercury's service reputation to Vantiv's technology and scale a "winning combination." 

Mercury plans to suspend its activities related to a proposed initial public offering and will withdraw its registration statement previously filed with the U.S. Securities and Exchange Commission.

Taylor and the Mercury management team will remain with the company, which will maintain its locations in Colorado, Vantiv says.

Earlier this year, Vantiv begana partnership with AT&Tto offer mobile card readers and the Vantiv Mobile Accept application for merchants to accept card payments through smartphones or tablets.

Nearly a year ago, Vantiv begana strategic relationship with NCRto sell the Vantiv Mobile Checkout system through the NCR Silver point of sale system. The combined technology allows small businesses to manager the payment processing services and inventory marketing.

Mercury appointed a new chief technology officer in February, giving the job toAndrew Patterson. Prior to coming to Mercury, Patterson was the vice president of payments software and emerging products at Moneris Solutions Inc. in Canada.

Executives did not elaborate on Mercury'slegal troubles with Heartland Payment Systems Inc., which sued Mercury in January, claiming Mercury is using deceptive trade practices and breaking California law to compete in the market by hiding its "excessive profits" in interchange fee rates.

Vantiv considered the Heartland lawsuit as part of its due diligence and will continue to defend Mercury's stance in the case, Drucker says.

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