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Tuesday, March 19, 2019

FIS-Worldpay mega merger: pros and cons

Merchant acquiring is shaping up as a battle of the titans with this week's news that Fidelity Information Services is merging with Worldpay Inc. The combination is valued at $43 billion in stock and cash to Worldpay shareholders, which works out to a 14 percent premium over Worldpay's share price, said Thomas McCrohan, managing director of financial technology and payments at the research and analytics firm Mizuho Americas.

News of the FIS-Worldpay combination comes on the heels of Fiserv's acquisition of leading acquirer First Data Corp. It also comes less than two years after Cincinnati-based Vantiv paid $10.6 billion for Worldpay Group plc and rebranded the combined entity as Worldpay Inc. As of last year, Worldpay was the largest merchant acquirer in the United States in terms of card processing volume, according to the Strawhecker Group. First Data held the number four spot.

Worldpay originally was a unit of Royal Bank of Scotland, but the bank was forced to sell the unit in 2009 as part of a U.K. government bailout of RBS. Pending approvals by shareholders and regulators, the combined company will retain the FIS moniker with headquarters in Jacksonville, Fla.

"The deal marks one of the biggest transactions in the fast-consolidating payments sector that is under pressure to cut costs," Raymond Pucci, director of merchant services at Mercator Advisory Group, wrote in a blog post on the FIS-Worldpay combination.

"Scale matters in our rapidly changing industry," Gary Norcross, chairman, president and CEO of FIS, said in a press release. Norcross will retain the titles of FIS chairman of the board, president and CEO.

"As a combined organization, we will bring the most modern solutions targeted at the highest growth markets." Charles Drucker, executive chairman and CEO at Worldpay, said the combined companies will benefit "from new scale and capabilities that will truly differentiate the company globally." Drucker will serve as executive vice chairman of the board of the new FIS.

'Bulking up,' diminishing choices

Like Fiserv, FIS is a leading provider of back-end processing services to banks and credit unions. But unlike Fiserv, which acquired First Data to enter the merchant acquiring space, FIS already has an established presence in merchant acquiring.

"It has been bulking up its merchant offerings to include business tools for retailers, such as analytics and inventory management," Pucci noted. "Further, FIS has merchant marketing and loyalty programs, as well as merchant gateway services to enable ecommerce transactions on a global basis." Pucci suggested other mergers and acquisitions involving merchant acquirers could be in the offing. "M&A departments will be working overtime to tee up new possibilities," he wrote.

Not everyone is convinced this is good. Industry attorney Adam Atlas said ongoing consolidation means ISOs have fewer choices for processor/acquiring partners. "Years ago, ISOs could shop for a deal with one of a handful of processors that did direct deals," he said.

Now three of those firms – Worldpay, Vantiv and NPC (which Vantiv acquired in 2010) – are one, Worldpay, which is about to be acquired by FIS. Two others – ChasePaymentch and Global Payments – are believed to be retreating from retail ISO deals, Atlas noted. "[W]e are left wondering how ISOs will be able to solicit competing bids for their sales work," he added. end of article

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