Fidelity National Information Services Abandons Worldpay Spin

Deal Overview

On February 1, 2024, Fidelity National Information Services (NYSE: FIS, $73.46, Market Capitalization: $42.3 billion) disclosed the completion of sale of a 55.0% ownership stake in the Worldpay WP Merchant Solution business to private equity player GTCR for total consideration of $12.0 billion. This move marks a withdrawal from the initial strategy outlined during FIS’s earnings call on February 13, 2023, wherein the company had proposed a tax-free spin-off of the Worldpay. However, a strategic pivot occurred on July 6, 2023, when FIS expedited its separation plan, aiming to establish two distinct global entities endowed with enhanced strategic adaptability. Consequently, FIS entered into an agreement with GTCR, a prominent private equity firm, to offload a majority interest in Worldpay. The transaction valued Worldpay business at an enterprise value of $18.5 billion inclusive of $1.0 billion in additional consideration that is contingent on the returns realized by GTCR exceeding certain thresholds. In accordance with the transaction agreement, FIS received over $12.0 billion in net cash proceeds on completion. FIS plans to allocate these funds towards debt reduction and the repurchase of shares totaling at least $4.0 billion throughout 2024, all the while ensuring the preservation of an investment-grade credit rating. Following the closure, FIS hold a 45.0% non-controlling equity interest in Worldpay.

After the divestiture, FIS and Worldpay have entered into commercial agreements allowing FIS to keep using Worldpay’s valuable clients and continue offering its financial technology solutions. Likewise, Worldpay gains ongoing access to FIS’s financial institution clients, supporting its expansion in the banking sector. Beginning from 1Q24, FIS 45.0% stake in Worldpay Merchant Solution business will be reported under the Equity method investment earnings.

Deal Rationale

In FIS’s 4Q22 earnings call, management announced plans to spin off the Worldpay Merchant Solutions business, acquired for $43.0 billion in 2019. This sparked significant interest from external parties, leading to a thorough evaluation by the Board and Management Team. They concluded that the revised separation strategy is best for FIS shareholders, offering greater potential for value creation than a traditional spin-off.

This new separation transaction was driven by a compelling strategic rationale, notably expediting the previously outlined separation plan aimed at establishing two distinct and highly focused global industry leaders. The initial valuation presented an attractive proposition, with a multiple of 9.8x FY23E adjusted EBITDA, factoring in anticipated dis-synergies and previously unallocated expenses. Notably, this valuation commanded a 20% premium over FIS’s trading valuation, which was around 8.0x EV/EBITDA in line with industry standards. Additionally, with the inclusion of the $1.0 billion as contingent consideration, the transaction’s multiple would elevate to ~10.4x, reflecting a premium of approximately 27%.

In terms of operational synergies, both entities were expected to gain from heightened management attention and operational streamlining, with FIS retaining a stake to ensure a mutually advantageous ongoing commercial partnership.

Additionally, the substantial upfront proceeds provide instant flexibility in how capital is used. This proceeds has reshaped FIS’s financial picture, helping to reduce debt to about 2.5 times earnings, which keeps FIS’s credit rating strong and shows stability to stakeholders. After reducing debt, FIS has about $2.5 billion available, mainly for improving shareholder value, especially through buying back shares.

Worldpay stands as the foremost global merchant acquirer by transaction volume, boasting a substantial $2.0 trillion in payments volume for the year 2022. Concurrently, GTCR’s commitment of up to $1.25 billion in supplementary funding bolsters Worldpay’s ability to pursue strategic acquisitions bolstering Worldpay’s competitive standing. Furthermore, Worldpay stands to gain from the formidable resources and expertise of GTCR, particularly noteworthy given GTCR’s recent completion of a prosperous $11.5 billion fundraise, specifically targeting investments in the FinTech and technology sectors. Ultimately, this transaction crystallizes a highly favorable and market-aligned valuation for FIS’s Merchant business, reinforcing its position as a compelling investment opportunity.

FIS and Worldpay Called off Spin-off background:

Earlier on February 13, 2023, FIS announced its plan to spin-off Merchant Solution business Worldpay. Post separation, Fidelity National wanted to focus on providing financial technology solution business while the spin-off company ‘Worldpay’ would operate as a Merchant Solution provider. The transaction was expected to be executed through distribution of shares of the Worldpay to FIS shareholders on pro rata basis. Charles Drucker was appointed as a strategic advisor to guide the spin-off process.

The move was a result of a strategic review recommended by hedge fund activist D.E. Shaw and Jana partners citing a significant share price discount compared to peers. The Jana Partner’s suggested management change also led to FIS CEO getting replaced with a new leader Stephanie Ferris. The deal was announced on concern of mediocre performance of Worldpay. The management expected to separate both the companies to strengthen the company’s strategic and operational focus, leverage growth opportunities, and deliver value to shareholders.

On July 6, 2023, management decided to cancel the planned tax-free spinoff which was more traditional and instead pursued a 55.0% stake sale to the private equity firm GTCR, citing a more favorable valuation proposition. The transaction was successfully finalized on January 31, 2024 with FIS retaining non-controlling interest (45.0%) in the Worldpay.

Company Description

Fidelity National Information Services (FIS) (Parent)

FIS, a leading provider of technology solutions for financial institutions and businesses globally, is instrumental in driving commerce with its financial technology. By enabling its clients to use technology in new and innovative ways, FIS addresses critical business challenges and improves customer experiences. With its headquarters located in Jacksonville, Florida, FIS is a Fortune 500® company that employs over 55,000 individuals in 50+ countries.

Worldpay, Inc. (Sold-out entity)

Worldpay is a global leader in payment processing and merchant services, facilitating transactions between businesses and consumers. It offers a range of payment solutions, including card payments, online payments, and point-of-sale systems, catering to various industries worldwide. Worldpay’s innovative technology and extensive network enable businesses to accept payments securely and efficiently, driving growth and enhancing customer experiences. The segment is highly trusted and has recorded $2.0 trillion in payments volume in 2022. Worldpay would offer a range of value-added services, including fraud prevention and foreign currency management, and serve clients in over 100 countries.