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Metavante Corp. will continue M&A activity

Milwaukee, Wis.Metavante Corp., a provider of banking and payment technology, plans to continue its growth-by-acquisition strategy following its separation from long-time parent company Marshall & Illsley Corp.

Metavante, a wholly owned subsidiary of M&I, has completed 17 acquisitions since early 2004, allowing it to offer a more complete product set.

In a conference call with investors, officials of both companies said the separation, which is being executed as part of a “sponsored spin transaction” with the help of New York-based private equity investor Warburg Pincus, would help Metavante add product lines and expand overseas.

As a public company, Metavante can “continue and even accelerate growth” by developing new products and acquiring complementary businesses, said President and CEO Frank Martire. “As I have stated many times, in an industry like ours, which continues to experience consolidation, size matters both in revenue and market valuation,” he said.

Terms of separation
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Under an investment agreement with Warburg Pincus, M&I has announced it will split itself and Metavante Corp. into independent public companies.

Warburg Pincus has agreed to invest $625 million to acquire an equity stake of 25 percent in Metavante, while shareholders of M&I Corp. will own 75 percent of the shares of Metavante.

The transaction is expected to close in the fourth quarter of 2007, pending approval of M&I shareholders and a favorable ruling from the Internal Revenue Service.

In conjunction with the transaction, approximately $1.75 billion of new Metavante debt will be arranged by J.P. Morgan Securities, Inc. and Morgan Stanley.

Metavante generated revenue of $1.5 billion and had net income of $160 million in 2006, and it will have 5,500 employees at the close of the transaction. A total of 980 financial institution clients, with aggregate assets exceeding $1 trillion, are served by its core payment processing platform, and it also has one of the nation's largest electronic bill-paying platforms.

During his address to investors, Martire praised M&I's Chairman and CEO Dennis Kuester for having the "vision to expand our services beyond our local markets," and he announced that M&I would be a valued customer. “M&I recently signed a seven-year renewal of our processing agreement," he said, "ensuring that we will remain a large and valued customer after our proposed separation.”

Kuester will remain chairman of Metavante Corp. and be joined on the board of directors by three Warburg Pincus executives, including David Coulter, managing director of financial services.

Flexing M&A muscle

David Konig, a senior research analyst for Robert W. Baird, said Metavante's break from M&I may give it more flexibility to accelerate the pace of its mergers and acquisitions activity. He said the company operates in a good growth industry, core processing, which is dominated by five key players, including Metavante and Fiserv.

All have been highly profitable in recent years. "The major players have EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) in the 25 to 32 percent range, and Metavante is right in that ballpark," Konig said.

Warburg Pincus, a private equity investor since 1971, has approximately $20 billion in assets under management. The company invests in a variety of industry sectors, including financial services, healthcare, technology, and telecommunications.

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