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Fiserve Buys First Data As Consolidation Heats Up Among Fintech Companies

Fiserv’s (FISV) acquisition Wednesday of struggling payment processor First Data (FDC) could be the first deal in a wave of consolidation among financial technology companies, analysts say. Fiserv stock dropped following the acquisition while First Data shares soared.


Brookfield, Wis.-based Fiserv will buy First Data, headquartered in New York, for $22 billion in stock. The purchase price was lower than expected, one analyst said.
Fiserv shareholders will own 57.5% of the new company, with First Data shareholders owning 42.5%. Fiserve stock fell 6.9% to 69.88 on the stock market today. First Data jumped 17.5% to near 20.60.
The last deal remotely close to this size among fintech companies took place in 2017 when Vantive bought WorldPay for $10.4 billion. That merged company is called WorldPay (WP).

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Fiserv provides financial services technology, including electronic bill payments and transaction processing, to banks and credit unions worldwide. Payment processor First Data has a large presence in the merchant business and competes with WorldPay, Chase Paymentech, and Global Payments (GPN).
WorldPay stock gained 1.6% to 81.53. Global Payments climbed 0.7% to 112.84.
Did First Data Sell At Disappointing Price?
Lisa Ellis, analyst at MoffettNathanson, speculated on mergers among fintech companies in a 2019 outlook report published on Jan. 10.
“It is possible that the merchant acquiring market will consolidate through market share gains alone, but we also expect M&A activity, including acquisitions of small country-specific players, and potentially some further mergers among the global majors: First Data, Worldpay, Chase Paymentech, Global Payments, Adyen, Stripe, PayPal-Braintree, and Wirecard,” said Ellis.
Instinet analyst Dan Dolev said Fiserv acquired First Data at a price-tag lower than investors had anticipated. First Data’s revenue and profit fell double digits the last two quarters. It’s been investing in startup fintech companies to spur a turnaround.
“While the $22 billion acquisition of First Data will yield impressive revenue and cost synergies, the purchase price of $22.74 per share is notably below the stock’s peak and far from the bull-case target price that prevailed in the investment community throughout much of 2018,” Dolev said in a report to clients.
“Moreover, when the M&A dust settles, Fiserv, which has a reputation for being a solid high-quality company, will be faced with the same issues that First Data has been facing with over the past few years,” Dolev said. “Those include an underperforming North America merchant acquiring business.”
Fiserv, First Data Merger May Pressure Smaller Rivals
However, Dolev, in an email to IBD, said the Fiserv-First Data deal could pressure smaller rivals. “I certainly think it will hurt the smaller guys with fewer capabilities,” he said. Those smaller rivals may look for deals now, he added.
Merchant acquirers serve as middlemen between banks and retailers. Merchant acquirers have contracts with retailers to handle the processing of credit card and other transactions.
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The post Fiserve Buys First Data As Consolidation Heats Up Among Fintech Companies appeared first on Investor’s Business Daily.

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