16 January 2019
Earlier today Fiserv announced the acquisition of First Data in an all-stock transaction, implying the equity value for First Data of $22 billion. The transaction brings together two large financial and payments technology firms under one roof.
The companies do have complementary assets:
- Fiserv has strong core and debit processing capabilities, while First Data extends those with credit card processing and solutions.
- Fiserv’s client relationships are mainly with the issuing FIs across the spectrum of size, including a large number of smaller FIs in the US; it also includes many billers. First Data also has many FI clients, particularly on the larger scale, as well as a large merchant portfolio.
- First Data’s merchant acquiring business is additive to Fiserv’s capabilities.
As a result, they expect revenue synergies of at least $500 million and other benefits:
- Looking to combine their assets in new ways to deliver richer end-to-end propositions, e.g.
- “Digitally enabled Clover”, e.g. integrating Clover into cash management with digital notifications
- Exploring opportunities for “money movement” between issuers, merchants, and billers, via card and non-card rails.
- Expanding risk propositions by bringing insights from card and non-card transactions.
- Synergies are NOT expected to come from consolidation of existing platforms.
- Distributing acquiring through small FIs, while continuing to focus on and finding new ways to serve existing common clients (e.g. Bank of America).
- Expect to be in a better position to service First Data’s debt through refinancing, strong cash flow generation, and suspending the share buy-back program.
As with any merger, the industry will keep an eye on a number of questions as the merger unfolds:
- First Data is far more geographically spread than Fiserv – how will the combined entity ensure the respective strengths in geography are utilized?
- The two organizations have little overlap in terms of services – ensuring focus on the right thing will be key, as not everything will be a cross-sell opportunity.
- As the growth of ACH and real-time continues, will Fiserv find the right balance between investments across the payments value chain?
This deal is another example of industry consolidation with already large technology providers looking to round out their offerings and further build scale. It significantly enhances Fiserv’s presence in cards, gives access to a different set of clients (e.g. merchants), and enables to develop propositions across the payments value chain, irrespective of rails.