The Green Sheet Online Edition
August 24, 2015 • Issue 15:08:02
First Data opens new chapter
It's a busy time at First Data Corp. The global payment processor and technology provider filed a registration statement with the U.S. Securities and Exchange Commission (SEC) on July 20, 2015, paving the way to an initial public offering of its common stock. Nine days later came the second quarter earnings statement with comprehensive reportage from each of its global business units.
The company reported quarterly income of $1.8 billion, a 1 percent increase over the same period in 2014. First Data Chairman and Chief Executive Officer Frank Bisignano expressed confidence in the company's "solid constant currency revenue growth." He cited the Clover Mobile and Clover Mini product launches, Transaction Wireless gift platform acquisition and strategic expense management initiatives designed to save $200 million a year by 2016 as highlights of the period ending June 30.
First Data also realigned its major business units during the second quarter. Following are three new reportable segments:
- Global Business Solutions provides retail POS, merchant acquiring and eCommerce services, including mobile payment services and cloud-based Clover POS systems.
- Global Financial Solutions provides credit and retail private-label card processing to payment card issuers with a single-access view of payments-related products and services.
- Network & Security Solutions provides a range of network services including Electronic Funds Transfer, stored value, and security and fraud management solutions.
The 'grand' collaborator
In a letter included in the SEC filing, Bisignano stated First Data's goal of becoming a "grand collaborator" by partnering with large and small companies to inspire innovation and provide greater choice to partners and customers. "We have also invested significantly in our technology infrastructure, both in management expertise and dollars," he said.
Bisignano led extensive investments in infrastructure and executive recruitment in an effort to create a "robust control environment," which he views as mission-critical to long-term success. He grew the company's Management Committee from five to 15 members. Two-thirds of its 150 most senior employees were hired during his tenure.
First Data has also taken steps to strengthen its balance sheet. "In the summer of 2014, we raised $3.5 billion of equity to pay down debt in one of the largest-ever U.S. private placements," Bisignano said. "As part of that capital raise, KKR chose to invest another $1.2 billion in First Data, including [its own capital], solidifying First Data as KKR's largest investment ever and the largest on its own balance sheet."
The journey ahead
While Bisignano remains bullish on First Data's prospects as a public company, industry analysts have adopted a tone of cautious optimism in assessing the journey ahead. The Strawhecker Group released a detailed assessment of the pending IPO on July 24, with comments from several of First Data's third-party processing clients. The report, titled TSG Commentary: First Data Public Offering Announcement, explores First Data's role in the payments industry and identifies opportunities and threats the company may face when it becomes publicly held.
While noting that First Data fulfills multiple roles in the payment value chain, "including both the acquiring and issuing sides of the transaction, as well as a debit network operator," the report is primarily focused on the company's position in the acquiring market. Even within the acquiring space, First Data plays multiple roles: merchant acquirer, third-party processor to other merchant acquirers and technology provider.
TSG analysts expect First Data to leverage its technology leadership and global reach but caution that it isn't easy to "be all things to all customers," especially in the payments industry, which has evolved in recent years into a diversified collection of offerings tailored for individual industries.
Toward a stronger balance sheet
Jared Drieling, Business Intelligence Manager at The Strawhecker Group expects First Data to continue its focus and outreach to the small and midsize business sector. He said the company's high debt load combined with shareholder oversight will pressure it to perform every quarter. "First Data's huge amount of debt may limit its opportunity from both an acquisition and innovation perspective," he said.
On a positive note, First Data's security and technology offerings may play a pivotal role in meeting its near-term growth objectives, analysts have said. While they expect First Data's near-term revenue to be relatively flat over the next few quarters, they predict strong performances from technology solutions, particularly the Star debit brand, TransArmor security solution and hardware sales.
"If we see successful sales in their new hardware technology systems and successful rollout of other tech-related products, First Data may see a surge in sales like never before," the report stated.
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