One of the biggest financial industry mergers in a decade comes amid tumult in the payment-processing business, which is being upended by a wave of start-ups.
Fiserv will acquire First Data Corp. for $22 billion in a deal announced Wednesday that will create the world’s largest payment processor. It comes as established players are facing challenges from San Francisco’s Square Inc., Amsterdam’s Adyen NV and a host of other fintechs exploiting the growth of online and mobile transactions and banking.
“Competing with the whole world of highflying fintech companies is not what Fiserv is used to doing,” said Lisa Ellis, who covers the sector for MoffettNathanson.
Fiserv helps thousands of regional banks offer bill-paying and electronic-payment services, in addition to handling the back-office functions of credit- and debit-card transactions. The Brookfield, Wis., firm also helps banks implement mobile-payment service provider Zelle, lenders’ answer to PayPal Holdings Inc.’s popular Venmo.
First Data, based in New York, says it facilitates $2.4 trillion in transactions each year. The company traces its history back to Omaha, when it was known as the Mid-America Bankcard Assn. in 1971. The all-stock transaction values First Data at a 29% premium to Tuesday’s closing price, giving the deal a $22-billion equity value.
“It will be interesting to see how combining two fairly large legacy processing companies will be done smoothly given the obvious complexities,” Sanjay Sakhrani, an analyst at Keefe Bruyette & Woods Inc., wrote in a note to clients.
Payment processors have been under pressure to consolidate as they compete to offer more technology to their customers. In 2017, Vantiv agreed to buy Worldpay for $9.9 billion to gain greater exposure to e-commerce retailers and small businesses. First Data has been on a deal spree of its own in recent years, picking up smaller companies to increase the firm’s market share.
The merger is the latest twist for one of the biggest take-private deals ever. New York private-equity firm KKR & Co. purchased First Data in a 2007 leveraged buyout, right before markets tanked. The deal left the company with about $17 billion of debt.
KKR brought in former JPMorgan Chase & Co. executive Frank Bisignano as the company’s chief in 2013 and returned the payment processor to the public markets in 2015. But shares had climbed just 9.6% before Wednesday’s merger was announced, compared with a 32% gain in the Russell 1000 Financial Services Index.
KKR will own 16% of the combined company, which will be led by Fiserv CEO Jeffery Yabuki. Bisignano, who had struggled to gain traction in First Data’s turnaround amid the heavy debt load, will become chief operating officer of the combined company.
“We’re creating an unparalleled fintech company,” Bisignano said in a telephone interview. “What this symbolizes is how much technology the payments space can take and have and we’re going to be the leader in it.”
The deal will leave the merged company with almost double the revenue of rival Fidelity National Information Services Inc. and multiple times that of Worldpay Inc. Fiserv plans to refinance First Data’s debt.