Fidelity National (FIS US) | Selling Majority Stake in Worldpay at $17.5bn Valuation

Today FIS announced the company has signed a definitive agreement to sell a majority stake in its Merchant business to private equity fund GTCR. The transaction is based on an upfront valuation of ~$17.5bn (with an additional ~$1bn in contingent considerations) and was unanimously approved by FIS’ Board of Directors. According to the company, this price equates to 9.8x Worldpay’s FY23 EBITDA (incl. ~$250-$300m in estimated dis-synergies and other previously unallocated costs). We are restricted on rating, price target, and estimates.

Upon closing of the Worldpay deal (expected to close 1Q24 pending regulatory approvals and other conditions), FIS expects upfront proceeds of ~$11.7bn, net of transaction fees and taxes. The net proceeds assume ~$4.4bn in FIS equity and ~ $13.1bn of cash to close along with ~$1.4bn in fees, taxes, and working capital adjustments. Further, the company could potentially see an incremental cash benefit of ~$1bn if GTCR meets potential return targets on its investment. According to company documents, the multiple on Worldpay represents a ~20% premium to FIS total company valuation of ~8.2x FY23E EV/EBITDA (as of 6/23/23). The remaining 45% stake in Worldpay that FIS holds will allow for them to maintain a commercial partnership and minimize any potential dis-synergies.

Upon closing the deal, FIS is expected to reduce its leverage to ~2.5x (assuming ~$10bn in gross total debt) down from ~3.2x in 1Q23. After paying down debt, FIS plans to utilize the remaining ~$2.5bn in upfront proceeds for share repurchases and general purposes. FIS noted that the company’s current operating model has long term contracts accounting for ~80% recurring revenue, that the business should benefit from industry tailwinds, and should be resilient in the face of a macro downturn. FIS and Worldpay will also enter into a commercial agreement where FIS can leverage Worldpay as a distribution channel and Worldpay’s clients can use FIS’ banking and treasury solutions. FIS also announced that it expects 2Q23 results for revenue ($3,675m-$3,725m), adj. EBITDA ($1,510m-$1,540m), and adj. EPS ($1.45-$1.50) to come in above the mid-point of guidance.

Worldpay will be held inside a standalone joint venture split 55/45 between GTCR and FIS and operate as an independent payment processor. The company will be led by Charles Drucker who previously led Worldpay prior to its acquisition. GTCR has also committed an additional investment of up to ~$1.25bn in Worldpay to support inorganic growth, with FIS also able to co-invest on a pari passu basis. This will allow Worldpay to more aggressively pursue M&A, previously identified as a business need, and one of the key reasons for the divestiture. FIS expects GTCR’s experience in payments and complex corporate carve-outs to benefit Worldpay.