Financial technology provider Fiserv has announced that it is acquiring payment processor First Data Corp. for $22 billion. The all-stock deal will be the largest acquisition to date in the growing digital payments sector. Fiserv agreed to purchase the payment processor in order to boost its own payments business, a sign of a wider trend by commoditized banking services towards diversification of transaction processing services.
Fiserv is currently one of the largest technology providers for banks according to revenue. When announcing the deal, the company said in a statement that the acquisition of First Data will allow it to provide a broader range of services to its financial clients, ranging from new customer enrollment to a wider set of physical and digital payment processing tools.
Jeffrey Yabuki, Fiserv's president and chief executive officer, said that he believes the deal will combine First Data's capabilities as the "largest, broadest and best processor of card-based payments" with his own firm's expertise in other payment services such as bank transfers.
According to a source close to the deal, Fiserv chose to pursue First Data due to its relatively low valuation as compare to its rival payment processors. At the time of the acquisition, First Data was trading at a price-to-earnings ratio of 14.83 times, far less than Global Payments Inc. (at 56.25) or Euronet Worldwide Inc. (at 30).
While First Data holds a dominant position in the U.S. payments market, the company has struggled due to its large debt burden following a KKR-led $29 billion leveraged buyout in 2007. Since re-entering public trading in 2015, First Data's share performance has been lagging despite efforts company executives to lower leverage levels. Following the deal's close, KKR--who currently owns 39 percent of First Data's common stocks--will hold 16 percent of the newly-combined company; the private equity firm will also gain a board seat.
Fiserv has already secured debt in order to refinance the $17 billion in obligations that First Data currently holds, and the financial technology provider aims at reducing First Data's leverage to historical levels within two years.
With Fiserv offering $22.74 per share, the acquisition represents a premium of almost 30 percent over First Data's closing price the day before the deal was announced. The deal is set to close by the end of 2019.