FIS: Announces Deal To Sell Majority Stake in Worldpay

Narrow-moat Fidelity National Information Services FIS had previously announced its intention to spin off its Worldpay merchant acquiring operations, but it has now agreed to sell a majority stake to private equity firm GTCR instead. GTCR will take a 55% stake at a $17.5 billion valuation, with potentially another $1 billion in the future based on GTCR’s returns. The deal values Worldpay at 9.8 times expected 2023 EBITDA, including corporate and additional stand-alone costs.

We like that this deal allows FIS to maintain a stake in Worldpay. We also believe that Worldpay may be better off as a private company, given that we think the business needs significant investment to restore growth. To this end, we like that GTCR has committed an additional investment of up to $1.25 billion for acquisitions. On the other hand, we think FIS is selling a significant stake at a somewhat depressed level. Additionally, the two companies will remain intertwined, and Worldpay’s becoming a private company could reduce transparency into its turnaround efforts. After updating our model to reflect this transaction, we expect to reduce our FIS fair value estimate to $76 per share from $83.

The deal is expected to close in the first quarter of 2024. FIS expects to use the $11.7 billion in proceeds to reduce leverage to 2.5 times debt/EBITDA, with the remainder to be used to buy back stock or for general purpose needs. Assuming the stock holds at recent levels, we would like to see as much as possible devoted to repurchases.