Fiserv will acquire First Data Corp. for $22 billion in a payments processing deal that marks one of the biggest financial mergers in a decade and a win for private-equity giant KKR & Co.
The deal will create the world’s largest payment processor amid a wave of consolidation in that industry, which faces threats from startups such as Square Inc. and Adyen NV. The all-stock transaction values First Data at a 29 percent premium to Tuesday’s closing price.
“It will be interesting to see how combining two fairly large legacy processing companies will be done smoothly given the obvious complexities,” Sanjay Sakhrani, an analyst at Keefe Bruyette & Woods Inc., wrote in a note to clients.
The merger is the latest twist for one of the biggest take-private deals. KKR & Co. purchased First Data in a 2007 leveraged buyout, right before markets tanked.
It brought in former JPMorgan Chase & Co. executive Frank Bisignano as its chief in 2013, and returned to the public markets in 2015. KKR is supporting the deal and will own 16 percent of the combined company.
First Data jumped a record 21 percent to $21.22 at 2:57 p.m. in New York on Wednesday, while Fiserv was down 3.7 percent and KKR shares climbed 4.6 percent. The transaction has a $22 billion equity value, the companies said, and First Data has about $17 billion of debt, which Fiserv plans to refinance.
The deal is a boost for Bisignano, who had struggled to gain traction in First Data’s turnaround while grappling with a heavy debt load brought on by the KKR buyout.
The shares had climbed 9.6 percent in the more than three years since the IPO through Tuesday, compared with a 32 percent gain in the Russell 1000 Financial Services Index.
Bisignano will become chief operating officer of the combined company, which will be led by Fiserv Chief Executive Officer Jeffery Yabuki.
“We’re creating an unparalleled fintech company,” Bisignano said in a telephone interview. “What this symbolizes is how much technology the payments space can take and have and we’re going to be the leader in it.”
The deal marks a bigger push into payment processing for Fiserv, which is based in Brookfield, Wisconsin, and helps thousands of regional banks offer bill-paying and electronic payments services, in addition to handling the back-office functions of credit and debit card transactions.
The firm also helps banks implement Zelle, major lenders’ answer to PayPal Holdings Inc.’s popular Venmo, after Fiserv’s own offering, Popmoney, struggled to take off.
“Competing with the whole world of high-flying fintech companies is not what Fiserv is used to doing,” said Lisa Ellis, who covers the sector for MoffettNathanson.
The deal will leave Fiserv with almost double the revenue of rival Fidelity National Information Services Inc. and multiple times that of Worldpay Inc.
Fiserv and First Data said in a conference call with analysts on Wednesday that they will create a $500 million investment pool from the cost savings associated with the deal that will help them fund improvements for their technology platforms.
Payment processors have been under pressure to consolidate as they compete to offer more technology to their customers.
In 2017, Vantiv agreed to buy Worldpay for $9.9 billion to gain greater exposure to e-commerce retailers and small businesses. First Data has been on a deal spree of its own in recent years, picking up smaller companies as Bisignano sought to increase the firm’s market share.
“In the payments businesses, scale really matters,” Yabuki said in a telephone interview. “It’s harder for smaller companies to be able to survive.”
Bank of America Corp. advised First Data. JPMorgan Chase & Co. advised Fiserv and provided committed financing for the deal, according to the statement.
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