Sunday , November 29, 2020

With A Big Worldpay Integration on Its Plate, FIS Is Likely to Look to ‘Tuck-in’ Deals, CEO Says

Having just swallowed the massive processor Worldpay Inc., Fidelity National Information Services Inc. will stay on the sidelines for a while when it comes to any more major acquisitions, its chief executive said Tuesday. Meanwhile, the combined company’s update indicated it is now on track to deliver more than $1 billion in incremental revenue and cost savings by the end of 2022.

Jacksonville, Fla.-based FIS in late July closed on its $43-billion cash-and-stock deal for Cincinnati-based Worldpay, and now the job of stitching the two big operations together is the central preoccupation for corporate management, FIS chief executive Gary Norcross said during a conference call to discuss the company’s third-quarter results. 

“We’re focused on the Worldpay integration,” Norcross said, though he added the company might execute a few small deals for companies that could fill gaps in the company, without being more specific. “We have plenty of cash flow to make small tuck-in acquisitions. Once we have Worldpay behind us, we’ll see if we have a broader [merger-and-acquisition] opportunity.”

Norcross: “We are more than confident in delivering more than $500 million in cost synergies.”

With the focus now on the Worldpay integration, one emerging advantage Norcross highlighted Tuesday is the ability to combine merchant data from Worldpay’s extensive acquiring operation with issuing data generated by FIS’s banking operation. This blend can bring a number of advantages, among them better fraud control. “We’ve got a full plan around improving authorization rates and fraud rates,” he told stock analysts on the call. “There’s a lot of opportunity here. The teams are highly engaged, and we’ll continue to drive to that.”

The Worldpay deal was one of three huge processor acquisitions in 2019, a year that has also seen Fiserv Inc. buy First Data Corp. for $22 billion and Global Payments Inc. snap up Total System Services Inc. for $21.5 billion. In all three cases, a major financial justification was incremental revenue and cost savings drawn from combined operations. Norcross on Tuesday said that after two months of experience with Worldpay the company now expects to generate more than the $500 million in cost savings it projected earlier over the next three years. This is on top of another $500 million in so-called revenue synergies.

The results so far “clearly demonstrate the power of this combination,” Norcross said. “We are more than confident in delivering more than $500 million in cost synergies.”

At the same time, the company clearly expects stepped-up revenue from its e-commerce operation. “We’re the lead global player in that mix. You’ll see up ramping that up,” Norcross said, without mentioning specifics. With 70% of FIS’s revenue stemming from the U.S. market, though, he said he expects “revenue synergies will fall accordingly.” And with Worldpay’s merchant-processing clients now in the fold, “the pipeline for cross-sell looks very good since the closing,” he added.

For the quarter, FIS reported $2.82 billion in revenue, up 35% year-over-year with two months of Worldpay operations included and a 5% increase organically. With the boost from Worldpay, FIS’s Merchant Solutions unit saw its revenue climb from $50 million a year ago to $720 million for the quarter.

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