FIS sells majority share in Worldpay to a buyout group for $18.5bn

Fidelity, the US-based financial technology company, has agreed to sell its majority stake in Worldpay (its merchant payments arm) to GTCR. The deal is valued at up to $18.5bn and represents one of the biggest corporate carve outs in history.

GTCR’s purchase of Worldpay will be financed with over $8bn of bank debt. This is the largest package for a private equity buyout in recent memory, since the capital markets collapsed in spring 2022, when the Federal Reserve started aggressively increasing interest rates.

Last week, it was reported that FIS had been in discussions with GTCR and Advent to sell the majority of Worldpay. GTCR won the auction presented by FIS’s advisors Goldman Sachs JPMorgan Centerview Partners to several large firms.

FIS is receiving net proceeds of $11.7bn, and will retain a 45 percent stake in Worldpay. This represents a change in strategy from when it announced to investors in February that it intended to spin-off the unit to its stockholders. The Florida-based firm said it will use the money to pay off debt and fund share repurchases.

Sources familiar with the situation say that Chicago-based GTCR is investing more than $5bn in equity into Worldpay and that FIS’s equity stake of 45 per cent is valued at around $4.5bn.

Sources familiar with the situation said that Goldman Sachs and JPMorgan will lead a consortium of lenders to raise $8.4bn for the private equity firm’s purchase. Citigroup, Wells Fargo UBS, and Deutsche Bank will also be participating in this financing.

This could be a sign that lenders are willing to finance large private equity acquisitions. After several “hung deals”, where had difficulty in transferring debt to third party investors, many banks were reluctant to finance takeovers.

GTCR values Worldpay at 9.8x its projected fiscal 2023 adjusted earnings, before interest, taxes, depreciation, and amortisation, for an initial valuation of $17.5bn. Based on the return the company earns, the valuation could reach $18.5bn. As a major minority shareholder, the company will benefit from any future growth in Worldpay’s valuation.

FIS shares ended 1.2 percent lower in New York on Thursday, along with a broader sell-off. However, they had jumped six percent on Monday, after the FT’s initial report.

The chief executive Stephanie Ferris stated that the transaction “allows FIS to monetise its merchant solutions business partially at an attractive value and provides certainty for stakeholders.”

GTCR is a long-time investor in the payments industry. In 2010, it sold a company to Worldpay, for more than 1bn dollars. Sources familiar with the matter said that the acquisition on Thursday was the largest in company history.

Collin Roche said that GTCR’s co-chief executive, Collin Roche, was “extremely confident in the potential for sustained growth over the long term at Worldpay”.

Worldpay has been a private equity company before. In 2010, Advent and Bain Capital acquired it from Royal Bank of Scotland as part of its financial crisis bailout.

In 2015, the firms listed the company at the London Stock Exchange and made billions. Vantiv, the company that Advent had created from US regional lender Fifth Third Bank , merged with Worldpay in a deal two years later. The combined entity was valued at more than 22bn pounds sterling.

FIS acquired Worldpay in 2019, as the payments industry was undergoing a consolidation wave. It also wanted to expand its presence in the industry.

FIS has struggled to merge the two businesses, and was under pressure last year from activists such as DE Shaw who urged it to review its strategy.

A source familiar with this matter said that the majority of GTCR equity commitments will come from its two funds. They are split roughly evenly between its Fund XIII of $7.9bn, raised in 2020 and its Fund XIV of $11.5bn, closed in May. GTCR’s largest investors will invest directly as co-investors in the Worldpay transaction.