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Popular closes purchase of digital assets from Evertec

Popular Inc.’s subsidiary Banco Popular de Puerto Rico has closed on its previously announced acquisition of certain assets and assumption of certain liabilities from Evertec Group, LLC to service certain of the banking institution’s customer channels.

As a result of the deal, BPPR now owns its retail and business digital banking and commercial cash management applications.

The bank also entered into amended and restated service agreements with Evertec Group through which the firm will continue to provide several information technology and transaction processing services to Popular, BPPR and their subsidiaries.

Under the amended service agreements, Popular stated it will have greater optionality to develop and enhance technology platforms and more flexibility to select service vendors, as Evertec Group will no longer have exclusive rights to provide certain of Popular’s technology services.

This is expected to improve Popular’s ability to meet its customer needs in a timely manner. In addition, the amended service agreements are projected to reduce service costs because of discounted pricing and lowered caps on contractual pricing escalators tied to the Consumer Price Index.

As part of the transaction, BPPR also strengthened its relationship with Evertec in the payments business, including through the incorporation of a revenue sharing structure for BPPR in connection with its merchant acquiring relationship with Evertec, it stated.

In connection with the transaction, Popular will add some 165 employees and contractors from Evertec that support the servicing of the acquired assets, “strengthening and deepening Popular’s in-house technology bench.”

“This transaction allows Popular to accelerate its ongoing digital transformation and continue improving our clients’ experience,” said Ignacio Álvarez, CEO of Popular Inc.

“With the ability to manage our key customer channels and greater flexibility to choose the best technology partners, we will be able to more quickly enhance the services that we offer through our digital platforms, as well as the sales and account maintenance processes we offer through all our channels,” he said.

“We aspire to provide an omnichannel experience that meets all of our clients’ needs and expectations,” said Álvarez.

The financial terms of the transaction call for BPPR to deliver to Evertec Group 4,589,169 shares of Evertec common stock valued at closing at $169 million, resulting in an after-tax gain of approximately $112 million.

“The financial benefits of the transaction during the first full year following the closing of the transaction are expected to be offset as a result of the elimination of Popular’s earnings from its investment in Evertec, which is currently accounted for under the equity method,” the financial institution noted.

“However, the financial effect of the transaction is expected to be accretive during future years due to, among other things, incremental merchant acquiring revenue sharing income and future price reductions in continuing services as a result of the amended service agreements with Evertec,” it added.

In terms of capital, the transaction results in a negative impact of approximately $55 million in Popular’s tangible book value as a result of the net effect of the after-tax gain of the Evertec shares used as consideration for the transaction — approximately $112 million — minus approximately $167 million in goodwill and other intangible assets recognized by the financial institution in connection with the transaction and the effect of purchase accounting-related adjustments.

By transferring its shares back to Evertec, Popular’s ownership stake in that firm was reduced from approximately 16.3% to approximately 10.6% at the closing of the transaction. In connection with the transaction, Popular has agreed to further reduce its voting interest in Evertec to no more than 4.5%, whether through selling shares of Evertec common stock or a conversion of such shares into non-voting preferred stock within 90 days of the closing of the transaction.

The subsequent reduction of Popular’s voting interest in Evertec to no more than 4.5% would result in $177 million in after-tax gains as a result of mark-to-market accounting, assuming a value per share of $36.88, Evertec’s share price on June 30, 2022.

The closing of the transaction with BPPR coincided with Evertec’s closing of its acquisition of 100% of the outstanding shares of BBR, SpA for some $53 million. Based in Santiago, Chile BBR is a payment solutions and business technology company with operations in Chile and Peru.

“We’re pleased to complete both transactions. The Popular transaction extends our relationship with our largest customer while the BBR acquisition continues to expand our footprint in Latin America, two important steps in continuing to execute on our long-term growth strategy,” said Evertec CEO Mac Schuessler.

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This story was written by our staff based on a press release.

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