Almost two months to the day since Fiserv announced the acquisition of First Data on January 16, FIS followed suit by announcing the merger with Worldpay. Again, a financial services technology powerhouse combines with one of the largest acquirers and payment processing companies. The combination of stock and cash values Worldpay at approximately $43 billion, including the assumption of Worldpay debt, which FIS expects to refinance.
FIS and Worldpay executives hosted a webcast earlier today to discuss the transaction. Naturally, they downplayed any suggestions that this might be a defensive move, and highlighted the strategic rationale for the deal. Both companies said this is about “thinking forward when you are winning” and investing for the future.
The consolidation in the acquiring and merchant services industry is nothing new and has been driven primarily by scale, distribution, and complementary technology capabilities. Distribution reach is still an important consideration, in terms of leveraging banking relationships to reach more merchants, and geographical presence to bring more services to new markets. For example, the companies discussed how FIS' global presence can help Worldpay strengthen their hand in some of the fast-growing e-commerce markets, such as India and Brazil.
However, the deal also demonstrates how companies are looking to leverage combined broader set of capabilities to a greater effect. For example, FIS and Worldpay executives talked about synergies in offering innovations, such as “loyalty-as-currency” solutions, enhanced fraud management through better and more data, B2B, and other solutions. Also, as open banking and faster payments grow, the ability to offer end-to-end solutions from merchants to account funding, irrespective of payment rails, will be increasingly important.
Over the next three years, the combined company expects to achieve revenue synergies of $500 million and cost savings of $400 million, delivering a combined EBITDA of $700 million. Cost savings are expected to come from operational synergies (e.g., issuing and acquiring processing by the same entity), technology integration, and corporate optimisation.
Given the size of both companies, these results can only be delivered with an unswerving focus on execution. Encouragingly, both FIS and Worldpay have a solid track record of acquiring and integrating other companies. FIS can point to eFunds, Metavante, and SunGard acquisitions, where they achieved at least 130% of expected synergy targets. Of course, Worldpay itself is in the midst of a merger integration with Vantiv, which according to the executives is “well progressed” and “ahead of plan.”
Only time will tell if the new combined entities can deliver more than the sum of the parts. At the moment, a growing number clearly believe that end-to-end capabilities in payments and financial services is a powerful proposition. We would not be surprised if there were more announcements in the coming months.