Zacks_Analysts' Blog : TSS Allies with Pivotal Systems - Analyst Blog

Expanding its merchant service solutions, yesterday, Total System Services Inc. (TSS) announced a strategic collaboration with privately-held Pivotal Systems to offer authorization, settlement and dispute resolution services.

North America-based Pivotal System processes more than $10 billion in annual revenues with a wide network of over 60,000 merchants, 1,200 agents and 400 employees. This premier and vast network coverage will likely spread out Total System’s merchant services business steadily besides enhancing its market position.

Total System has been constantly gearing up to boost its merchant-acquiring business. In October last year, the company inked a deal with Kenya-based Imperial Bank, while in May 2011, it strategically allied with Caledon Card Services in Canada and also acquired Atlanta-based merchant acquirer, TermNet Merchant Services. The latter is the 52^nd largest merchant acquirer in the US by dollar volume, according to The Nilson Report.

Furthermore, in January this year, Total System fully acquired First National Merchant Solutions LLC (FNMS), thereby renaming it as TSYS Merchant Solutions (TMS).

Overall, we believe that although the complete acquisition of TMS and expansion into merchant acquiring services are expected to drive growth, sole dependence on it could be risky for the long-term growth of the company. Total System faces stiff competition from dominant players such as Global Payments Inc. (GPN) and Alliance Data Systems Corp. (ADS). Currency and interest rates fluctuations also pose additional risks.

However, we believe that the overall market stability and healthy impact of the regulations in the card industry will help recover the number of client accounts and long-term contracts in the long run. Moreover, Total System carries a Zacks Rank #3, which translates into a short-term Hold rating and a long-term Neutral stance.

On Tuesday, Total System closed at $20.25, up 3.8%, on the New York Stock Exchange.