Consolidation in the payments sector.
Back-office operations made front-page news last month when Fidelity National Information Services (FIS), a fintech, bought payments-processor Worldpay in a 90% stock, 10% cash deal valued at $43 billion. FIS will assume Worldpay’s debt and intends to refinance.
“Scale matters in our rapidly changing industry,” FIS CEO Gary Norcross said in the statement announcing the deal. “Our two powerhouse organizations will combine forces to offer a customer-driven combination of scale, global presence, and the industry’s broadest range of global financial solutions.”
The tie-up is the latest in a string of recent strategic moves in the payments sector, the highest-priced but not likely the last. Two months prior, Fiserv bought First Data for $22 billion. Only a few weeks before that, NCR acquired JetPay in a more modest deal valued at $184 million. Worldpay itself consisted of three smaller companies—Vantiv, Moneris Solutions and an antecedent Worldpay—less than three years ago.
Expect more consolidation, say analysts. “There are still a [few] independent gateways left standing,” says Rivka Gerwirtz Little, research director at IDC Financial Insights, singling out Total System Services as a likely acquisition target. A PaymentsJournal article published shortly before the Worldpay announcement also listed Global Payments and Elavon as the last of the traditional legacy “merchant acquirers” (payments facilitators) as well as the Chase Merchant Services subsidiary of J.P. Morgan Chase.
So far, the buyers and targets have had obvious strategic alignment. The combined enterprises tend to offer the same clients a broader array of services; and they allow more-conventional companies access to broader geographic markets and new payment channels, including the Chinese wallet app AliPay and the messenger app WeChat.
Strategic fit is not a given, however. Going forward, “the interesting part is, who are the acquirers we’re not expecting?” Little says.
FIS’s offer represents a reported premium of 32% over Worldpay’s stock price and a trailing-year earnings multiple that almost doubles the 12x reached by the Fiserv-First Data deal. Even so, FIS might still be getting a bargain.
“We like this combination, which accelerates FIS’s revenue growth,” an Evercore ISI report argues. In a separate note to investors, Evercore analysts described FIS stock as “deeply undervalued.”