By Carlos Asorey, Gustaf Baavhammar, Steven Skomra and Chris Leung (Georgetown and University of Warwick) - Date: 07/04/2019
Overview of the deal
Acquirer: FIS (Fidelity National Information Services)
Target: Worldpay Inc.
Estimated value: $43 bn
Announcement date: 18/03/2019
Acquirer Advisors: Centerview Partners and Goldman Sachs
Target Advisors: Credit Suisse
US financial services provider FIS has launched a $43bn bid on British payments processing rival Worldpay to create a fintech services juggernaut. The deal comes at a heated period in the financial technology sector which is consolidating with rapid intensity as global payments are expected to reach new heights of $3 trillion in annual revenues by 2023. Despite M&A activity in other sectors stalling over trade tensions, growth in the payments sector has been strong. Deal count and size in the financial services has foreseen an upward trend throughout the decade as exemplified by the fact that FIS’ acquisition comes only 2 months after Fiserv and First Data entered into their own $22 bn merger. Yet the impetus for such rapid consolidation has been largely driven by increasing pressure in recent years to slash costs, provide more innovative solutions, and expand their consumer base as more people migrate onto cashless platforms.
“Scale matters.” - FIS Chairman, President and CEO Gary Norcross
Company Details (FIS)
FIS is a global leader in the financial services technology industry, providing solutions and services to both retail and institutional clients. Having grown artificially through a series of acquisitions over the past 15 years, FIS offers a breadth of solutions portfolio, global capabilities and domain expertise, with their systems in use from back office automation to front office trading.
- Founded in 1968, headquartered in Florida, United States
- CEO: Gary Norcross
- Number of employees: 53000 (2017)
- Market Cap: $36.55 bn -EV: $44.81bn
- LTM Revenue: $8.42 bn -LTM EBITDA: $2.38 bn
- LTM EV/Revenue: 5.32x -LTM EV/EBITDA: 18.81x
Company Details (Worldpay)
Worldpay is a leading payments technology company that formed as a result of a recent acquisition by Vantiv earlier in January. Processing more than 40 billion annual tractions whilst supporting over 300 payment types across 126 currencies, Worldpay operates an integrated technology platform that generates revenues by collecting transactions fees coupled with data insights and consultancy services.
- Founded in 1989, headquartered in London, United Kingdom
- CEO: Charles Drucker
- Number of employees: 5000 (2017)
- Market Cap: $35.28 bn -EV: $42.09 bn
- LTM Revenue: $3.93 bn -LTM EBITDA: $1.55 bn
- LTM EV/Revenue: 10.72x -LTM EV/EBITDA: 27.2x
Projections and Assumptions
Short term consequences
Including debt (~$9bn) which FIS plans to refinance, the deal would value Worldpay at approximately $43bn ($112.12 per share) wherein Worldpay shareholders are set to receive 0.9287 of FIS shares and $11 in cash per share held, representing a mere 14% premium on Friday’s closing price. Whilst a low premium paid bodes well from FIS’ financial viewpoint, it may also reflect the slower growth prospects within Worldpay’s core market coupled alongside the need to trim costs – which will be where the majority of short term objectives lie. Following news of the acquisition, shares in Worldpay jumped 9.9% whilst FIS inched 0.7% lower. Despite experiencing a temporary minor dip, the deal would not only immediately accelerate organic revenue growth, which is projected to increase to between 6% - 9% through to 2021, but also streamline operations and facilitate long term value creation through opportunities across merchant and banking ecosystems.
Should the transaction be approved by regulatory bodies, Norcross will remain as chairman of Board of Directors, President and CEO of FIS, meanwhile Drucker will assume a new position as executive vice chairman of the combined firm. Homogenising operations over the short term would help reposition FIS to better capitalise on the booming e-commerce pay-tech industry, especially in emerging markets with a focus on Brazil and India – countries that bear large mobile presence yet still retain traditional cash methods. Furthermore, the acquisition has been branded as a “diversification play”, allowing FIS to expand into the high-growth payments sector where size and scale certainly provide an advantage. Deals such as PayPal’s $2.2 bn acquisition of iZettle or Fiserv’s $22 bn merger with First Data could potentially become the new norm for this rapidly consolidating industry where acquisitions are proving to be the most effective manner of coping with increased competition, as they consolidate the fragmented industry by predatorily acquiring companies to boost their market presence.
In addition, FIS anticipates $500m of revenue synergies, coupled alongside $4.5bn of expected future cash flows over the next 3 years – insinuating significant value creation for both companies and shareholders. Furthermore, integrating both teams would help leverage managerial expertise who have proven track records for innovative leadership and exceeding synergy targets to maintain exceptional value to clients and shareholders alike. Ultimately, the deal is expected to elicit a certain degree of short term merit, although much of the synergies would be manifested within the firm’s long term goals.
“This is all about an offensive deal and going to where the growth is happening and looking in the long term” – Gary Norcross, Worldpay CEO
Long term upsides
The acquisition of Worldpay comes at a time of increasing competition in the online payment industry as smaller, more technologically focused startups have started to challenge larger, more established companies. As a result, larger companies have turned to consolidation through mergers and acquisitions, takeovers, and private-equity buyouts as a way to increase scale and cut costs in order to more easily fend off against new competition in a highly diversified industry. This has been seen in Vantiv’s 2017 acquisition of Worldpay, Fiserv’s current merger with First Data, and now FIS’ acquisition of Worldpay. A combined entity of FIS and Worldpay would increase FIS’ position within the industry against these new competitors and other consolidating firms such as Fiserv, but FIS maintains that the acquisition is merely to generate future growth and is not a response to recent M&A activity.
FIS hopes that acquiring Worldpay will allow them to improve their current position in the U.S. market and also allow them to expand further into emerging markets. While FIS currently