US payments processor Fiserv has agreed to purchase heavily indebted rival First Data in an all-stock deal that values the company at roughly $39bn, in one of the largest financial services takeovers since the crisis. 

The deal comes as disruption in the payments industry heats up, with a wave of consolidation seen among traditional financial services providers and technology groups.

Fiserv, which has more than 12,000 clients, sells financial processing systems that help banks and other institutions complete debit, credit and cash machine transactions. First Data provides payment processing systems such as credit card readers for small and large businesses as well as ecommerce services.

First Data stockholders will receive 0.303 shares of Fiserv for each share of First Data they currently hold, worth roughly $22.74 based on the close of trading on Tuesday. 

The offer represented a premium of nearly 30 per cent to First Data’s closing share price on Tuesday of $17.54, but was nonetheless below a recent high marked last September when First Data shares climbed to $26.62. The share price dropped sharply a month later after the payments processor missed its profits estimates and trimmed revenue growth targets. 

Acquisition activity in the payments technology space — which includes the likes of Apple Pay and Square, as well as the back-end infrastructure that enables transactions — has been on the rise as consumers and merchants turn increasingly to cashless payment methods. 

First Data has been seen at somewhat of a disadvantage in the race, as the company lumbered under a multibillion-dollar debt burden from its $28bn takeover by private equity group KKR. 

The company struggled with those financial obligations, earning junk ratings from the major credit rating agencies in the US. Its more than $17bn of debts had limited First Data’s ability to invest in its core business, but the takeover by Fiserv would give the combined group a stronger investment grade-rated balance sheet.

First Data has found some success in its fierce competition with Square for boutique coffee shops, restaurants and other small businesses owners. Transaction volumes on its tablet-based device — known as Clover — are now running at a $70bn annualised rate, the company said, up 45 per cent from a year ago. Square, by contrast, processed more than $22bn of transactions in the third quarter of 2018, or just under $90bn on an annualised basis.

“Through this transformative combination, we expect to redefine the manner in which people and institutions move money and information,” said Jeffery Yabuki, chief executive of Fiserv. 

The two companies said they expected to complete the deal by the second half of this year. Fiserv hopes to wring $900m of costs out of the two groups over the next five years and plans to refinance First Data’s debts. Fiserv added it would suspend its share repurchase programme until the transaction closes to minimise its debt obligations.

First Data shares climbed 19 per cent in early-morning trading to $20.89, while Fiserv declined 6 per cent to $70.83.

The deal ranks among the largest acquisitions in the finance industry since the crisis, according to data provider Refinitiv. Within the payments sector, it is second only to the spin-off of PayPal from eBay in 2015, separate data from Dealogic showed. 

George Mihalos, an analyst with Cowen, said he was surprised by the timing and price at which First Data agreed to the sale. But he added that he believed the deal “makes sense” for Fiserv.

“The transaction will increase Fiserv’s exposure to larger and mid-tier banks where the company is currently under represented,” Mr Mihalos said. “The combined entity should be able to sustain organic revenue growth of at least 5 per cent going forward.”

JPMorgan Chase and law firm Sullivan & Cromwell advised Fiserv. Bank of America and Simpson Thacher & Bartlett provided advice to First Data.

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