After 142 years of printing and processing cheques, DH Corp. is finally ready to cash one.
The Toronto-based company, which has been struggling with debt amid plans to reinvent itself as a financial-technology firm, said Monday it has accepted an offer to take the company private that values the equity portion of the deal at $2.7-billion.
The buyer, Texan private equity firm Vista Equity Partners, plans to merge DH with another of its portfolio companies – a British financial-software firm that has been active acquiring fintech businesses.
It's the latest chapter in the long story of the company formerly known as Davis + Henderson – one that has recently included short-seller criticism, a rapid slide in market value and an effort to offer more digital solutions as changes to the way people and companies pay for goods and services eroded its original business. DH, which was founded as a printer of paper cheques in 1875, has been trying to get ahead of that curve by building a global payments and lending-technology business in recent years.
The exit of such a large Canadian financial-technology firm comes at a moment when other banking and insurance stalwarts are pouring cash into funds and businesses focused on digital solutions to a host of different consumer-facing and back-office functions. And venture capital investment in Canadian fintech companies soared to its highest level since 2000 last year, according to Thomson Reuters data.
DH also rode the hype wave for a few years, as its stock climbed more than 185 per cent between late 2011 and mid-2015. The company was an active acquirer and looked to tap into the increasing funds that banks had to spend on renewing their technology as an economic recovery eased budgets.
It seemed DH's move to diversify away from cheque printing in 2006 was gaining traction, and the company became a beacon of large-scale success in the fintech space. Retail investors liked that it still paid a healthy dividend.
But the shine began to wear off in 2015 with the $1.25-billion (U.S.) cash deal for payment processor Fundtech Ltd. To get the deal done, DH turned to a $950.1-million (Canadian) bought deal financing.
This raised the attention of short-seller Lawton Park Capital Management, which questioned whether the company's acquisitions were paying off fast enough to make up for declines in its legacy Canadian cheque-processing operations.
The company said it "strongly disagreed" with the short-seller's criticism, and said "various economic conditions in 2016" had slowed some sales.
Then, in 2016, DH said it would cut back its dividend from 32 cents a share to 12 cents, saying it would use the money to repurchase debt, among other things. The company's stock price, which had slid below $15 after hitting a high of more than $43 in 2015, began to rebound after that – perhaps because investors believed the turnaround story at the company. Shares were further buoyed when the company said it was reviewing expressions of interest from outside investors.
"Clearly we experienced volatilities in 2016, as some of our larger customers and prospects postponed or elongated project timelines, but we've not seen any change in overall market interest particularly for payment hubs and modernizations," said the company's chief executive officer Gerrard Schmid on a call with analysts on March 8.
If the deal is approved by shareholders and meets other closing conditions, DH will get another chance to pursue the trend of payment infrastructure modernizations outside of the public markets. Vista plans to combine DH with Misys, a London-based software provider for international banking, investment management and other financial businesses.
Representatives of DH declined to comment on Monday's transaction, but Mr. Schmid said in a statement that the deal "creates a global leader in financial technology, with a broad array of products to serve customers."