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U.S. fintech to buy Worldpay as electronic payments business booms

[March 18, 2019] By Justin George Varghese and Rachel Armstrong

(Reuters) - U.S. fintech Fidelity National Information Services Inc (FIS) has agreed to buy payment processor Worldpay for about $35 billion, the biggest deal to date in the fast-growing electronic payments industry.

The deal is part of a wave of consolidation in the financial technology sector as firms seek to bulk up on payment systems that are increasingly used for online and high street sales.

"Scale matters in our rapidly changing industry," said FIS Chief Executive Officer Gary Norcross, who will lead the combined group.

Global payments are set to reach $3 trillion a year in revenue by 2023, according to consulting firm McKinsey, as more people switch from cash to digital payments.

The industry's growth has kept deals for payment systems rolling even as merger moves in other sectors have stalled on concerns about trade tensions and a global slowdown.

U.S.-based Fiserv Inc bought payment processor First Data Corp in January for $22 billion, while Italy's Nexi plans to list in what could be one of Europe's biggest initial public offerings (IPOs) this year.

The FIS deal, valuing Worldpay at about $43 billion when debt is included, comes a little more than a year after U.S. firm Vantiv paid $10.63 billion for the payments firm, which was set up in Britain and spun off from Royal Bank of Scotland in 2010.

The combination of FIS and Worldpay will become a global powerhouse in the fintech sector, with annual revenue of about $12 billion and adjusted core earnings of about $5 billion.

Worldpay is a major player in card payments, particularly in Britain, while FIS focuses on retail and institutional banking, as well as payments.

BREADTH OF COVERAGE

"You need scale to win at payments processing and this deal certainly gives the two companies incredible breadth of coverage," said Russ Mould, investment director at AJ Bell.

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A waitress issues a receipt at a cafe in Athens, Greece, June 25, 2015. REUTERS/Alkis Konstantinidis

Worldpay shareholders will receive 0.9287 FIS shares and $11 in cash for each share held, valuing the company at $112.12 per share, a premium of about 14 percent based on the stocks' Friday closing, according to Reuters calculations.

Shares in Worldpay, which has provided payment processing services for more than 40 years, were up 10.5 percent at $108.99 in premarket trading on Monday.

The companies said the deal would result in an organic revenue growth outlook of 6 to 9 percent through 2021, and $700 million of total core earnings savings over the next three years.

The companies said they expected $500 million of revenue savings and aimed to deliver nearly $4.5 billion of free cash flow in three years.

Under the deal, shareholders will own about 53 percent in the combined firm and Worldpay shareholders about 47 percent.

Worldpay's CEO Charles Drucker will become the executive vice-chairman.

FIS, which has grown through a series of acquisitions in the past 15 years, offering software and outsourcing services banks, asset managers and insurers.

Centerview Partners and Goldman Sachs were financial advisers to FIS, the companies said, adding that Willkie Farr & Gallagher LLP served as FIS' legal adviser in the transaction.

(Reporting by Justin George Varghese and Arathy S Nair in Bengaluru and Rachel Armstrong and Simon Jessop in London; Editing by Saumyadeb Chakrabarty and Edmund Blair)

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