IPO Report: First Data (FDC)

Francis Gaskins |

First Data (FDC) believes it offers its clients the most complete array of integrated solutions in the industry, covering their needs across next-generation commerce technologies, merchant acquiring, issuing, and network solutions. The company is based in New York, NY.

Three other companies are scheduled for the week of Oct. 12. The full IPO calendar is available at IPO Premium.

SEC Documents

Manager, Joint-managers: Citigroup, Morgan Stanley, BofA Merrill Lynch, KKR, Barclays, Credit Suisse, Deutsche Bank Securities, Goldman Sachs, HSBC, Mizuho Securities, PNC Capital Markets, SunTrust Robinson Humphrey, Wells Fargo Securities
Co-managers: Allen & Company, BBVA, Cowen and Company

End of lockup (180 days): Tuesday, April 12, 2016
End of 40-day quiet period: Tuesday, November 24, 2015

FDC scheduled a $3 billion IPO with a market capitalization of $16.7 billion at a price range midpoint of $19 for Thursday, October 15, 2015 on NYSE.  Priced at $16, 16% below mid-range.

First Data IPO Summary

First Data sits at the center of global electronic commerce.

FDC believes it offers its clients the most complete array of integrated solutions in the industry, covering their needs across next-generation commerce technologies, merchant acquiring, issuing, and network solutions.

FDC serves its clients in 118 countries, reaching approximately 6 million business locations and over 4,000 financial institutions.

FDC Valuation

Glossary

Accumulated deficit (mm)

.

.

-$11,600

     

Per share dilution

.

.

-$37.37

     
             

Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

First Data (FDC)

$16,701

1.5

63.3

10.3

-1.0

18%

annualizing June 6 mos, includes equity earnings in affiliates & other income

 
             

FDC IPO Conclusion

Neutral

Accumulated deficit is $11.6bb

For the June 6 months

Operating profit % of rev is 12%

Interest exp % of operating profit if 94%

Pre-tax profit (pre-equity in affiliates) is .9%

Price to sales is 1.5

P/E is 63

On an annualized bass rev is flat

Per share dilution is $37.37 vs IPO mid-point of $19

Business
First Data sits at the center of global electronic commerce.

FDC believes it offers its clients the most complete array of integrated solutions in the industry, covering their needs across next-generation commerce technologies, merchant acquiring, issuing, and network solutions.

FDC serves its clients in 118 countries, reaching approximately 6 million business locations and over 4,000 financial institutions.

Industry's largest distribution network
FDC believes it has the industry’s largest distribution network, driven by its partnerships with many of the world’s leading financial institutions, its direct sales force, and a network of distribution partners.

FDC is the largest merchant acquirer, issuer processor, and independent network services provider in the world, enabling businesses to accept electronic payments, helping financial institutions issue credit, debit and prepaid cards, and routing secure transactions between them.

In 2014, FDC processed 74 billion transactions globally, or over 2,300 per second, and processed 28% of the world’s eCommerce volume. In its largest market, the United States, FDC acquired $1.7 trillion of payment volume, accounting for nearly 10% of U.S. GDP last year.

Three primary lines of business
FDC’s company is organized around three primary lines of business:

Global Business Solutions (GBS) – This segment provides retail point-of-sale merchant acquiring and eCommerce services as well as next-generation offerings such as mobile payment services, webstore-in-a-box solutions, and FDC’s cloud-based Clover point-of-sale operating system, which includes a marketplace for proprietary and third-party business apps.

 Global Financial Solutions (GFS) – This segment provides credit solutions for bank and non-bank issuers. These include credit and retail private-label card processing within the United States and international markets, as well as licensed financial software systems, such as FDC’s VisionPLUS bank processing application, and lending solutions. GFS also provides financial institutions with a suite of related services including card personalization and embossing, statement printing, client service, and remittance processing.

Network & Security Solutions (NSS) – This segment provides a wide range of value-added solutions that FDC sells to clients in its GBS and GFS segments, smaller financial institutions, and other enterprise clients. These solutions include FDC’s EFT network solutions, such as its STAR Network, its debit card processing solutions, its stored value network solutions, such as Money Network, ValueLink, Gyft, and Transaction Wireless, and its security and fraud solutions, such as TransArmor and TeleCheck. This segment also supports FDC’s other digital strategies, including online and mobile banking, and its business supporting mobile wallets.

Intellectual property
FDC owns a global portfolio of many trademarks, trade names, patents, and other intellectual property that are important to its future success.

The only intellectual property rights that are individually material to FDC are the First Data trademark and trade name, and the STAR trademark and trade name. The STAR trademark and trade name are used in the Network & Security Solutions segment.

The First Data trademark and trade name are associated with quality and reliable electronic commerce and payments solutions.

Financial institutions and merchants associate the STAR trademark and trade name with quality and reliable debit network services and processing services.

Loss of the proprietary use of the First Data or STAR trademarks and trade names or a diminution in the perceived quality associated with these names could harm the growth of FDC’s businesses.

First Data's Competition

FDC’s Global Business Solutions segment competes with merchant acquirers that include Vantiv, Worldpay, Global Payments, and Heartland Payment Systems, in addition to financial institutions that provide acquiring and processing services to businesses on their own, such as Chase Paymentech Solutions, Elavon (a subsidiary of U.S. Bancorp), and Barclaycard.

In many cases FDC’s alliance and commercial partners compete against each other.

Additionally, payment networks such as Visa and MasterCard are increasingly offering products and services that compete with FDC’s suite of solutions.

Competitors of FDC’s next-generation services include PayPal, Braintree (a subsidiary of PayPal), CyberSource (a subsidiary of Visa Inc.), Adyen, and Stripe, along with integrated point of sale providers such as Micros, NCR, Square, ShopKeep, Revel, and others.

FDC’s Global Financial Solutions segment competes with card issuer processors, such as Total System Services, Vantiv, Fidelity National Information Services, Fiserv, Worldline, Equens, and SIX Payment Services, as well as the card issuer processing businesses of the global payment networks such as UnionPay Data.

In addition, FDC competes with various software or custom-designed solutions that some financial institutions use to perform these services in-house.

FDC’s Network & Security Solutions segment competes with networks such as Visa, MasterCard, and Discover for debit network services, and with Fidelity National Information Services for debit network and check verification and guarantee services.

FDC also faces competition from regional operators of debit networks. FDC’s portfolio of analytics, information, security and risk management solutions competes with a wide range of providers across multiple disciplines, including Visa, MasterCard, Voltage, Verisk, Equifax, Experian, TransUnion, and Fair Isaac.

5% shareholders pre-IPO

New Omaha Holdings L.P.         75%                 

Dividends

No dividends are initially planned.

Use of proceeds

FDC expects to receive $2.9 billion from its IPO and use it for the following:

to redeem all $510 million aggregate principal amount of its 11.25% senior unsecured notes due 2021, approximately $2.0 billion aggregate principal amount of its 12.625% senior unsecured notes due 2021, and to pay applicable premiums and related fees and expenses, and for general corporate purposes.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FDC First Data Corporation Class A 14.19 -0.21 -1.46 2,894,132

Comments

Emerging Growth

AfterMaster Inc

Studio One Media Inc is a diversified media and technology company. It is engaged in the development and commercialization of proprietary, edge audio and video technologies for professional and consumer…

Private Markets

Airbnb

Airbnb is a community marketplace for people to list, discover, and book unique accommodations around the world — online or from a mobile phone. Whether an apartment for a night,…

Ozobot by Evollve Inc

Ozobot is a world leader in compact super intelligent robots that entertain and educate through fun interactive gaming.