July 22, 2015
American payment-processing bigwig First Data Corporation is going public, almost a decade later after going private, in what was touted to be one of the biggest leveraged buyouts of the time. Bought out by American private equity firm KKR & Co. and its investors in 2007 in a deal valued at $29 billion, it was a mega buyout of the time, just before America’s financial meltdown. The private equity firm which specializes in leveraged buyouts had pursued First Data hard and paid a significant premium for the company’s stock price with an enormous private equity check. KKR and its peers made very big deals urged on by cheap and available debt before the financial crisis, which resulted in a back-breaking experience for them, as many of these deals took years to result into profitable exits. The credit card and payments processor filed for an initial public offering (IPO) beginning of this week, clearing the way for majority owner KKR who will be finally set free from one of its most debt-heavy deals of recent years. Post the buyout, First Data had struggled to grow as the financial crisis had impacted its core credit-card transactions in a big way. The deal to KKR seemed so heavy that at that point, it valued First Data at just 60 cents on the dollars originally invested. KKR also pumped in an additional $1.2 billion in the business last year. (If you are a movie buff you must have seen, Barbarians At The Gate which was based on the story of the first large leveraged buyouts, popularly called LBO.)
First Data now has some 4,000 financial institutions globally as clients and processes more than 2,300 transactions in a second. It posted its first quarterly profit in seven years in 2013, under the leadership of former top JP Morgan Chase & Co. Executive Frank Bisignano. This milestone opened up the company’s doors for the public offering. The IPO could value the company at about $40 billion, including debt. First Data has said that it is looking to raise $100 million in its offering. Going by this, the company’s equity value seems to have risen since the original deal was funded with more than $23 billion of debt, with long-term debt at around $20.6 billion on March 31.
First Data is in the business of running debit-card network and processes bank-card transactions for banks and merchants with three lines of business. Its Global Business Solutions (GBS) provides retail point-of-sale merchant acquiring and e-commerce services and mobile payment services, web-store-in-a-box solutions. Its cloud-powered Clover point-of-sale operating system includes a marketplace for proprietary and third-party business apps. The Global Financial Solutions (GFS) provides credit solutions for bank and nonbank issuers that include credit and retail private-label card processing and licensed financial software. First Data’s Network and Security Solutions provides electronic funds transfer network solutions, value network solutions, and security & fraud solutions. Last year, First Data’s earnings were $11.2 billion compared to $10.8 billion the previous year. With a net loss of $265 million in 2014 down from $692 million in 2013, it is also cutting down its losses. The first quarter of 2015 saw $2.7 billion in revenues and a loss of $63 million.
Note: The title of this article was updated few minutes after publishing and $100 mn amount was removed. The filing said it could raise $100m in the offering, but this was a place holder amount that is certain to change and no underwriters were listed. So we removed it for now.