Friday, March 29th, 2019
Last month, Fiserv Inc. shocked market analysts when it announced plans to take over First Data Corp. According to observers, this will be the biggest merger in the payments and the financial-tech world.
The deal, expected to come to a close in Q3 values First Data at a whopping $22 billion and will include Brookfield, Wis.-based Fiserv top assets in merchant acquiring, as well as the rapidly growing Clover smart-terminal unit.
What’s more, it will also boost both firms’ networking with financial institutions and grow Fiserv’s PIN-debit business by incorporating First Data’s Star network.
The merger will empower Fiserv to rake annual revenues of around $15 billion but will also be accountable for a significant millstone—the nearly $17 billion debt that First Data has struggled to clear for several years.
Fiserv’s masterplan is to refinance the debt immediately the deal closes and start settling it with free cash flow from their joint operations, as stated by Fiserv CEO Jeffery Yabuki in a consultation call held with First Data CEO Frank Bisignano on the day of the acquisition’s declaration.
Yabuki warned that the investment sector had used First Data’s debt load to dwarf the significance of its payments assets. “We will still have that $17 billion in debt for some time, but it will be at a reduced cost,” he noted.
“While we saw a lot of debt in First Data, we also saw major investments in the payment space and said ‘Wow.’ Many observers do not understand this investment. It’s a huge debt, but there’s a lot more EBITDA.” He explained EBITDA as an accounting term that refers to earnings before taxes, interest, amortization, and depreciation.
According to Yabuki’s prediction, the integration will earn Fiserv some $4 billion per annum in free cash flow by year 3 of the acquisition.
Yabuki will hold the chief executive and chairman’s spot in the combined entity, while Bisignano will serve as president and chief operating officer. The latter will also be part of the board of directors.
According to Bisignano, the two most noteworthy benefits of the merger are; first, it will help First Data achieve its long-awaited dream of running a capable processing platform. And secondly, it will lead to the immediate “deleveraging” of First Data’s balance sheet.
It should also stay clear that Fiserv has assets in payments spaces, e.g., electronic billing which will open doors for First Data to launch marketing operations on what Bisignano termed as “the broadest merchant-services platform globally,” which will now spread to around 20,000 Fiserv-served bank branches.
To venture newer spaces, Yabuki announced the merger would set aside up to $500 million over the coming five years “to allow new sources of growth.” However, he was not specific on what areas they wish to explore.
The declaration of the integration stirred mixed reactions among most analysts, leaving others optimistic while rousing cynicism in others.
Hopefully, the Fiserv-First Data merger will work for the benefit of both its mother companies and prove to observers that the acquisition was a calculated move.