Scuppered Talks Between FIS And Global Payments Point to Enduring Importance of Size

Mega-merger fever hasn’t subsided in the payments industry. A combination of FIS Inc. and Global Payments Inc., which have reportedly broken off talks to merge in a deal that could be valued at $70 billion, would represent a continued push for yet more economies of scale in a business whose profitability relies crucially on size, observers say.

“It’s an example of a continued scale play,” says Jared Drieling, senior director of consulting and market intelligence at The Strawhecker Grfisoup, an Omaha-Neb.-based consultancy.

The two big processing companies had hoped to announce a deal this week and both entertain hopes of resuming negotiations, according to a report posted Sunday by The Wall Street Journal. Global Payments, headquartered in Atlanta, will not comment on the report. Jacksonville, Fla.-based FIS did not respond to a request for comment.

Both companies in 2019 completed big acquisitions that brought vital new capabilities to their portfolios. The two deals, in which FIS paid $35 billion for merchant processor Worldpay, and Global bought acquiring and issuing processor TSYS Inc. for $22 billion, were part of a mega-merger trend that swept through the payments industry, reshaping competitive strategies for large and small players. A third major combination last year, in which Fiserv Inc. acquired First Data Corp. for $22 billion, created a another processing giant. 

Now, a merger of Global and FIS could accelerate that trend as players compete to build size and reach to add volume while controlling unit costs, observers say. The deal would also add new strengths for FIS. Global, for example, would bring integrated-payments strengths to FIS as a result of a string of acquisitions Global has executed with companies that specialize in weaving payments capability into management software. The recently acquired TSYS assets, including the Cayan point-of-sale technology, could also help FIS launch slick new products that meld payments with business management and marketing. “FIS doesn’t have a Clover or a Square,” notes Drieling, citing two examples of such technology.

Some observers are surprised news of the negotiations emerged, given that they didn’t yield an agreement. “It’s a little odd word of the talks would leak if they were unsuccessful. Usually, if talks are unsuccessful, you never hear about it,” notes Aaron McPherson, founder of AFM Consulting LLC. He worked at FIS for three years, leaving in 2016.

Because of the sheer size of the parties involved, observers also point to the possibility of involvement by federal antitrust authorities. If the two companies ultimately strike a deal, “I think it could pass muster with the Feds, but there will be scrutiny,” says Drieling.

Still, if the merger is clinched, one consideration will rank above all others, the one the mega-mergers all have in common. “It’s more merchants. It’s a scale game,” McPherson says.