Ecommerce is driving the many mergers in the payment industry. And while some of these deals may have a top dollar digit tied to them, it isn’t that easy to be an investor in any of these merger-and-acquisition deals.
For instance, let’s take the example of the FIS-Worldpay merger valued at $34 billion, plus a whole $9 billion in debt. Fidelity International Information Services is a general digital processor of merchants and financial services worth $9.2 billion in revenue, while, Worldpay— a processor of merchant transactions valued at $3.9 billion in revenue.
Both firms are a product of the previous years of M&A transactions. And the sector has been experiencing several consolidations globally. Here are a few
- January: Fiserv (FISV) announced it would acquire First Data (FDC) for $22 billion;
- Last year: Worldpay was taken over by Vantiv for $10.4 billion;
- 2015: The FIS swallowed Sungard in a $9 billion deal.
And from the above deals, we can see that; there’s a mix of M&A’s here interpolated with private equity ownership.
The FIS-Worldpay deal was laid down with a shy 14% premium, as the consolidation fee. FIS intends to use Worldpay to sell financial services to customers worldwide. “Scale matters in our speedily transforming industry,” said FIS CEO Gary Norcross.
In essence, payments processing is a tech-savvy, changing business that needs economies of scale to generate money and mine lots of data. Tech is always upgrading, and Security remains a bone of contention.
All these transformations aim to a fully integrated, international, frictionless, end-to-end processing for online payments. These conditions— economies of scale, disruption, integration, and data—are driving mergers and acquisitions.
So far, the FIS is performing relatively well on both internal operations and mergers: revenue has been growing, expenses have remained low, and the firm has struck some acquisition deals. It also has a 12-month return on equity of 16.7% compared to the sector’s 20.3%. And stocks have gone up 8.7% over the past year, in contrast with the sector’s 12.8%, according to Zacks. FIS is looking to extract $400 million per year in cooperation from the Worldpay transaction, and improve growth rate from 6% to 9%
The merger will generate revenue worth $15 billion and $7 billion in earnings minus interest, depreciation, taxes, and 3 years of payback, which would cut down the amount owed on the deal.
According to many analysts, the merger is a great deal. Only, most of them are trying to analyze how these firms will work together to achieve the projected figures. Sector analysts have been scrutinizing the many M&A calls, offering congrats while questioning whether each is a goldmine or minefield.
But as with any M&A deal, there are multiple ways to crack the code and succeed, and there are even more ways to fail. Companies and analysts tend to pay attention to the seeming advantages: new products, talent, scale, synergies, scope, and pricing power. However, talent flees, products failures, accumulating lawsuits, and innovation always lead to a new deal.
Author Bio: Payment industry expert Taylor Cole is a passionate merchant account expert who understands the complicated world of Worldpay reviews at your business. His understanding of the industry has helped thousands of business owners save money and time.