Under the agreement, Fundtech shareholders will receive 2.72 shares in S1 common stock for each Fundtech one. This will leave S1 shareholders with 55% of the merged firm and Fundtech investors with the remaining 45%.

Operating under the Fundtech name, the new company will be headquartered at S1's base in Atlanta, Georgia. Fundtech CEO Reuven BenMenachem will serve as executive chairman while his counterpart at S1, Johann Dreyer will act as chief executive. Each firm will have four directors on an eight-member board.

The two say their combination will create a global leader in transaction banking. S1 already claims over 3000 clients in around 75 countries while Funtech says it has around 1000 customers for its payments, settlement and cash management software.

In the first quarter, the companies generated pro forma combined revenue of $95 million, adjusted Ebitda of $10.4 million and net cash from operating activities of over $32.0 million. The pair expect to make annualised pre-tax savings of around $12 million by the end of next year. Excluding merger costs, they both also reaffirm their full year guidance.

News of the agreement comes a fortnight after Fundtech was forced to confirm market rumours that it was in discussions on a possible tie-up, although S1 was not widely touted as the suitor, with analysts talking up Bottomline Technologies and ACI Worldwide instead.

Says Dreyer: "Both companies have key strengths in technology, products, customers and culture, and we are extremely excited about the opportunities that will be created by combining these businesses. This merger will expand our geographic footprint and enhance our ability to accelerate revenue growth and increase profitability."

BenMenachem adds: "The companies have complementary product offerings and extensive cross-selling opportunities which will position the combined company to secure larger contracts and cultivate more strategic relationships with customers."

Subject to shareholder, regulatory and Israeli court approval, and customary closing conditions, the deal is slated to close in the fourth quarter. Fundtech's largest shareholder, Clal Industries and Investments, which holds about 58% of the vendor, has agreed to back the merger on certain conditions.