First Financial Management Corporation
First Financial Management Corporation
Sales: $1.6 billion
Stock Exchanges: New York
The First Financial Management Corporation is a leading provider of information services, with the largest share of the U.S. merchant credit card processing business. The company’s merchant services unit also provides check verification and debt collection. Other units of First Financial provide health care data management services and data imaging capabilities. Overall, First Financial encompasses 185 business subsidiaries throughout North America. The company got its start processing checks and grew rapidly, diversifying its operations through a rapid series of acquisitions in the 1980s.
First Financial was founded in 1971 as the data processing unit of the First Railroad and Banking Company of Georgia. The enterprise was set up to process checks by electronically following them through the banking system. By 1983, this operation was reaping $24 million in revenues. At that time, First Federal was spun off from its corporate parent. When the company’s president, Patrick H. Thomas, sold stock in First Financial to investors, he promised them that he would use their capital to raise First Financial’s revenues to $100 million a year within four years. This rate of growth required that companies be acquired, rather than developed from scratch. Beginning in 1984, First Federal went on a buying streak that lasted for the rest of the decade.
In March 1984, First Federal paid $2 million for United Computer Services, Inc., based in Marion, Illinois. One month later, the company bought Financial Systems, Inc. In May, First Federal paid $200,000 for certain assets of First American National Bank-Eastern. In August, the company rounded out its first year of acquisitions with the purchase of Financial Computer Services, Inc., for three quarters of a million dollars.
In expanding its operations through acquisition, First Federal sought to become a major player in the commercial transaction industry. First Federal’s executives believed that the wave of the future in banking and commerce lay with electronics and computerized information, not with cumbersome paper slips and forms. The company wanted to become the middleman for a wide variety of exchanges in which electronic data was manipulated, acting as a support system for the financial industry of the future.
To attain this status, First Federal continued its rapid pace of acquisitions in 1985, buying four computer data services during that year. In February, it paid $135,000 for assets of the Data One Corporation, and in June an interest in Financial Data Services, Inc., was acquired for $2.75 million. In the following month, Decimus Data Services joined the First Financial family of companies, and in December the company paid $229,000 for Bob White Computing Services.
In making acquisitions, First Federal sought out relatively small entrepreneurial firms, which were important because they helped First Federal to increase its list of clients. Because it was cumbersome and time consuming to win new customers in the financial services field, First Federal had found it more economical simply to buy a small company than to individually recruit each of its customers. When First Financial purchased a small firm, the company did not, however, insist that the smaller company’s operations be broken down and merged with those of First Financial. Instead, the company left them intact in the same location, with the same management, culture, and individual style. First Financial had a decentralized management philosophy, and, though there was ample overlap in its operations, the company did not attempt to institute central marketing or sales operations. Former owners of properties that had been bought were encouraged through stock deals to stay and work for First Financial, because their ownership in First Financial could only be liquidated over time.
After a brief pause, First Financial resumed its acquisitions at the end of 1986, buying the customer base of American Information Services, Inc., for $2.5 million, in August. In the following month, the company bought American Data Technology, Inc., for $2.2 million, and in October 1986, First Financial acquired Mid-Continent Computer Services for $23 million. These purchases were designed to strengthen First Financial by building up its revenues. In March of the following year, First Financial bought Tel-A-Data Limited for $8.2 million, and the Confidata Corporation, for half a million dollars. Four months later, First Financial also purchased American Automated and its On-Line Terminal Services for $4.3 million.
In the last four months of 1987, First Financial made three purchases that moved it strongly into a new field and nearly tripled the size of its operations. In October 1987, the company bought the National Bancard Corporation (NaBanco) of Fort Lauderdale, Florida, for $48 million. With the acquisition of this company, First Financial moved aggressively into the market for credit card transaction processing. Later that month, First Financial added to its holdings in this area when it purchased Endata, Inc., of Nashville, Tennessee. With these moves, First Financial became one of the three largest merchant credit card processors in the country. The company decided to enter this field after its examination of why banks were unable to make money on their credit card operations. First Financial found that banks lost money when they had to collect and manipulate paper credit card receipts from merchants. By installing electronic terminals at cash registers, the company was able to eliminate this step and make credit card transaction processing much more lucrative.
In addition to its credit card operations, First Financial also purchased the First Data Management Company of Oklahoma City at the end of 1987, and Midwest Com of Indiana, Inc., for which it paid $400,000. At the end of this year, First Financial reported revenues of $175 million, which yielded profits of $11.6 million. Thomas had met and nearly doubled his goal of three years ago.
In 1988, First Financial built on these strong returns by embarking on further acquisitions. The company continued its expansion into the credit card business by purchasing the retail merchants credit card processing contracts of Manufacturers Hanover Trust Company in February 1988. In December of that year, First Federal enhanced its computer operations when it bought Appalachian Computer Services, a company based in Kentucky, for $46.5 million. “We’re continuing on our path to be a significant financial-transaction company, and this rounds out one of our services,” First Financial’s chief financial officer told the Atlanta Business Chronicle.
By this time, First Financial had accumulated more than 25,000 customers, including over 1,500 financial institutions. This total had been achieved through the company’s 27 acquisitions, which came, on average, once every three months. First Financial ended 1988 with revenues of $423.7 million, an increase of more than 100 percent from the previous year. Profits reached $29.3 million. Nearly half, by far the largest part, of this income was contributed by First Financial’s credit card processing operations.
Early in 1989 First Financial announced that it would branch out beyond its core transaction processing businesses to acquire a Georgia savings and loan association, despite the fact that this industry had been in a severe and protracted slump. The company took this step in order to protect its lucrative credit card processing operations. Concerned that the major credit card companies might one day issue rules that would prevent third party companies, such as First Financial, from processing transactions, First Financial decided to buy into the credit card industry in order to gain some say over how the accounts were handled. In order to become a credit card issuer, it was necessary to own a financial institution. By buying Georgia Federal Bank in May 1989 for $234 million, First Financial became the issuer of over a hundred thousand credit cards. In addition, Georgia Federal boasted 11 percent of all deposits in its Atlanta market, where it was the largest thrift institution. Despite its size and strategic importance, Georgia Federal’s acquisition by First Financial left the financial community worried about the company’s prospects, and First Financial’s stock price began to fall.
Following this unorthodox move, First Financial bought a company in its traditional line of business: Data Preparation, Inc., which was acquired in July 1989. In addition, The Computer Company, which processed Medicaid claims, was purchased in September for $38 million. With this acquisition, First Financial took a tentative step into the enormous market for management of health care data. In the last month of the year, First Financial made another large acquisition, paying $118 million for the MicroBilt Corporation. This company provided information processing systems for small, niche markets. The company combined standard hardware with specialized software to create unique systems for transaction-intensive industries.
At the start of 1990, First Financial announced that it would switch its stock listing from the over-the-counter market to the New York Stock Exchange. In this way, the company hoped to shore up its financial reputation and increase its attractiveness to foreign investors. Just a few days later, First Financial also announced that it had reorganized its Financial Services Group into a subsidiary and changed its name to BASIS Information Technologies, Inc. This new entity comprised First Financial’s original business operations, which provided check-clearing services to independent, local banks, and 16 acquisitions in this field. With this restructuring along functional lines, the company hoped that BASIS would be better equipped to compete for the business of small financial institutions through its 24 data processing centers around the United States. By the end of its first quarter in business as a separate entity, however, BASIS was reporting only a 10 percent profit margin, half of what First Financial executives had predicted.
This news, combined with an announcement that the federal government would investigate the real estate holdings of First Financial’s thrift institution and general jitteriness about the savings and loan industry, combined to push First Financial’s stock price into a steep drop in the spring of 1990. Because the company used its stock to finance acquisitions, this drop in the value of its stock curtailed the number of purchases it could make.
By the start of the summer, First Financial’s stock price had begun to recover, and the company announced in August that it had finalized its purchase of two Atlanta businesses, Nationwide Credit and Online Financial Communication Systems, which meshed with the company’s Microbilt subsidiary. With its purchase of the first company, First Financial entered the debt collection business. With the purchase of the Zytron Corporation the same month First Financial enhanced its Endata operations. The company also bought the Electro Data Corporation of Denver and the Bank of Boston’s credit card contracts. In December 1990, First Financial announced that it had also acquired the credit card contracts of the Southeast Bank of Florida, which had one of the ten largest merchant contract portfolios. Shortly before this, the company had completed its acquisition of the same operations from the Bank of New York, bringing a total of 12,000 new merchant customers to the company’s credit card subsidiary. NaBanco, First Financial’s credit card subsidiary, had become the nation’s largest credit card processing company, notching annual growth of 40 percent.
Although First Financial’s pace of acquisitions slowed in 1991, its revenues nevertheless climbed to $1.2 billion. In the following year, First Financial made a number of key purchases. In July 1992, the company augmented its credit verification operations by buying TeleCheck Services, Inc., and its subsidiary, the Payment Services Company, for $156 million. Shortly, First Financial would expand its ownership of TeleCheck franchises to 97 percent.
Three months earlier, First Financial had moved further into the health care field, acquiring ALTA Health Strategies, Inc., which it renamed FIRST HEALTH Strategies. This Utah-based enterprise was the largest independent health care management company in the United States. With this acquisition, First Financial signaled that it planned to move from its strength in bank processing to a dominant position in the automated medical claims processing field.
As part of this shift in corporate direction, First Financial divested itself of its savings and loan subsidiary, selling the Georgia Federal Bank, and its subsidiary, First Family Financial Services. After a planned sale of this property in the summer of 1992 fell through, First Financial petitioned the Georgia state banking regulators for permission to form a credit card bank, called the First Financial Bank. After transferring Georgia Federal’s data processing business to this new subsidiary, the sale of the thrift was completed, as the First Union Corporation paid $153 million for the property. This move, long urged by the financial community, was expected to lift the price of First Financial’s stock.
At the end of 1992, First Financial also announced that it would sell its BASIS Information Technologies subsidiary, the company’s original business, which now contributed only 10 percent of First Financial’s revenues. This move came on the heels of a $150 million lawsuit filed in October 1992 against the International Business Machines Corporation (IBM), alleging that IBM had failed to properly implement a new computer system, which had damaged the company’s operations. After receiving a cash settlement from IBM, First Financial completed the sale of BASIS to FIServe, Inc., for $96 million in February 1993.
In July of that year, First Financial activated the First Financial Bank as a credit card issuer, making it the sponsoring bank on customer contracts for the NaBanco processing operation. In addition, the company moved more aggressively into the health care field, purchasing Hospital Cost Consultants and VIPS, which marketed a Medicare claims processing system. First Financial also took a step into a new industry in 1993 when it purchased International Banking Technologies, Inc., for $47 million. This company had helped extend banking operations to supermarkets by negotiating agreements between grocers and financial institutions. With this move, First Financial hoped to introduce its own services to a wider market. By the end of the 1993, First Financial’s revenues had grown to $1.67 billion.
During the course of 1993, First Financial had also completed a reorganization of the company’s infrastructure. In this way, First Financial hoped to prepare itself for effective action as the company moved into the late 1990s. With its record of rapid growth and strong financial performance, First Financial appeared to be well situated to thrive in the coming years.
First Image Management Company; TeleCheck Services, Inc.; MicroBilt Corporation; Nationwide Credit, Inc.; National Bancard Corporation; First Health Services; First Health Strategies.
Bean, Ed, “An Empire in the Making,” Georgia Trend, October 1989.
“The Bum Rap,” Georgia Trend, August 1990.
King, Jim, “First Financial Credit Card Bank Ok’d,” Atlanta Journal and Constitution, November 26, 1992; “First Union Will Buy Georgia Federal,” Atlanta Journal and Constitution, December 21, 1992.
Lee, Shelley, “FFMC Expands at Blistering Pace,” Business Atlanta, December 1991.
Morrison, Cindy, “FFMC Expects to Net a Big One Next Month,” Atlanta Business Chronicle, November 21, 1988.