Fiserv and First Data just announced that Fiserv, a company seen as a FinTech is acquiring First Data, the world-leading payment processor, in an all-stock transaction valued US$ 22 billion (EUR 19.3 billion). However, as First Data is heavily indebted, to the level of US$ 17 billion (EUR 15 billion), a legacy of the company’s shaky history: First Data was acquired by investment group KKR in 2007, and then went public again in 2015. Fiserv’s plan is to refinance the debt load as soon as the deal closes thanks to synergies building up from the combined operations: “Fiserv will generate some US$ 4 billion (EUR 3.5 billion) annually in free cash flow by the third year of the merger,” declared Jeffery Yabuki, Fiserv CEO and president, and future CEO and chairman of the new entity.
Companies expect to close the deal in H2/2019, subject to regulatory approvals. The two firms say that their combination will enable them to offer a range of payments and financial services, including account processing and digital banking solutions, card issuer processing and network services, e-commerce, integrated payments and the Clover cloud-based point-of-sale system.
The payment processing business is facing a drop in its revenue as payment commissions are under attack both in the US and in Europe. Mega mergers in the payment processing industry are far from being unknown: this news comes just a year after the completion of the merger between Vantiv and Worldpay, two leading players in the payment industry.
Besides its traditional payment processing business, First Data has been actively pursuing a diversification strategy leading the company to develop new businesses such as Clover, a competition to Square offer for small merchants. Square say they process around US$ 90 billion (EUR 79 billion) yearly on their payment devices while First Data Clover system is responsible for US$ 70 billion (EUR 61.5 billion) of processed transactions. First Data also acquired card-not-present payment company BluePay in 2017, CardConnect that specializes in payment solutions for SMEs and integration with independent software vendors, and Acculynk that focuses on P2P and e-commerce technology. However, these efforts were not recognized by investors as First Data stock price had dropped 33% since September 2018.
On the other hand, Fiserv is more a technology provider for the financial services industry: the company delivers technology and services in payments, processing systems and services, risk and compliance, customer and channel management, and insights and optimization.
The combination between Fiserv and First Data will create the world’s largest payment processor but also a strong organization able to pursue the diversification process that had been initiated separately by the companies. The new entity will have different lines of business besides payment processing that will make it a competitor of companies as diverse as Alipay, Square, Stripe, Adyen, etc.