After a year of hectic M&A activity, more US companies are taking the consolidation route to streamline operations and enhance economies of scale. In a sign that the trend is gathering steam, Wall Street has already witnessed some important deals this year. One of them is the coming together of two leading providers of financial technology solutions, in a deal worth $22 billion.
The acquisition of payment solutions company First Data (FDC) by Fiserv (FISV), a provider of financial services technology, is considered a game-changer for the sector. While creating a broader financial services ecosystem, the combined entity will offer customers hassle-free access to various services.
The merger between the two market leaders is expected to expedite the digital transformation of banking services and the way people and enterprises transact with each other. With several new players entering the market, the combined synergies will help the merged entity to fight competition effectively while strengthening its foothold in the market.
The deal is expected to expedite the digital transformation of banking services and the way people and enterprises transact
Post-merger, the client solutions portfolios of the companies will be expanded and their market share will be consolidated. The tech-intensive services range from account processing and digital banking solutions to card issuer processing and network services. The managements also expect to achieve significant revenue synergies and cost-savings.
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It is estimated that the all-stock deal will be accretive to earnings by about 20% in the first year and generate annual free cash flow of about $4 billion in the third year. Meanwhile, Fiserv is confident that the new company, to be led by its chief executive officer Jeffery Yabuki, will retain its investment grade ratings. First Data chief Frank Bisignano will assume the role of president and chief operating officer and become a member of the board of directors. After securing the necessary regulatory approvals, the transaction is expected to complete in the second half.
Fiserv shares slipped to the negative territory soon after trading started Wednesday, losing about 6% in the early hours. Recovering from the recent lows, the stock had closed the previous trading session higher. In contrast, First Data surged about 19% following the report, after closing the last session higher.