Vantiv Joins the Ranks of Publicly Traded Payment Processors

Vantiv Inc. began trading on the New York Stock Exchange on Thursday with the symbol VNTV, having priced its shares late on Wednesday at $17, the mid-point of its estimated opening range. The Cincinnati-based payment processor saw its initial offering of 29.4 million shares raise just shy of $500 million.

Investors welcomed the newest publicly traded processor. Shares opened at $19.00 and as of noon Eastern were trading at about $19.50.

Proceeds from the share sale will help Vantiv pay down some of its debt. Interest payments on that debt burden came to $68 million in 2011, according to a regulatory filing.

Co-owner Fifth Third Bancorp reported on Thursday it expects to realize approximately $60 million in first-quarter after-tax gains from the public offering. That could go up to $71 million if underwriters decide to buy more shares, the Cincinnati-based banking company said.

Fifth Third sold a 51% interest in Vantiv, then known as Fifth Third Processing Solutions LLC, to private-equity firm Advent International Corp. in June 2009 for $565 million. Advent will see its controlling interest in Vantiv, which bills itself as the country’s largest acquirer of PIN debit transactions measured by volume, increase to 70.2%. The public shareholders will actually own only 23.1% of Vantiv Inc.’s economic interests and 18.8% of the voting shares.

The offering would value Vantiv at $3.6 billion, or about 43 times its 2011 earnings, according to estimates by Bloomberg, which pegs the earnings multiple for peer processors at 20. Vantiv’s filing identified a host of familiar companies as competitors. On the merchant-acquiring side, they include Global Payments Inc., Total System Services Inc. (TSYS), Bank of America Merchant Services, Chase Paymentech Solutions, U.S. Bancorp’s Elavon subsidiary, First Data Corp., Heartland Payment Systems Inc. and WorldPay US Inc. On the card-issuing side, Vantiv named Fidelity National Information Services Inc. (FIS), First Data, Fiserv Inc., TSYS and Visa Inc.’s Debit Processing Service.

But David Fish, a senior analyst who follows the acquiring business at Mercator Advisory Service, Maynard, Mass., says Vantiv’s optimistic pricing is justified by trends like the ongoing decline of check writing and the advent in the U.S. market of mobile payments and chip cards. “There’s reason to be optimistic about companies that participate in electronic payments,” he says. “There’s a secular trend of conversion of paper to electronic formats, and that trend is continuing to build strength. Well-managed companies will do well.”

Vantiv’s 2011 revenue totaled $1.62 billion, up 40% from 2010. The company made a number of acquisitions in the past two years, including that of rival merchant processor National Processing Co. Net income was $84.8 million, up 54%.