FIS/Worldpay: finserv group should not rush for a divorce

Corporate mergers fail more often than marriages. Those who keep the score can add another name to the first list. Fidelity National Information Services (FIS), a US financial software and services group, has announced plans to: spin off Worldpay, our acquired merchant payments business $43 billion Exactly 4 years ago. Today, FIS is worth just $38 billion after losing more than 42% of its value in his one year.

Although not a household name, FIS provides technology that keeps retail banking systems functioning, especially for smaller banks. We offer everything from tracking customer deposits to complex back-office trading operations.

FIS entered merchant payments by acquiring Worldpay. Including debt, FIS paid an amount equivalent to 24 times the ebitda.Predicted the profits that merged companies would generate, arguing that the larger the size, the greater the profits. $15 billion in revenue Deliver up to $4.5 billion in free cash flow over three years.

Promise, promise. Not only FIS Failure We couldn’t offer our core clients a better digital payment solution than other fintechs to successfully integrate their businesses.SMEs, which account for about half of Worldpay’s revenue, according to Mizuho, ​​are Square, defected to competing payment providers such as Toast, Clover and Shopify.

The shift has accelerated even more during the pandemic. FIS’s traditional banking services sector faces headwinds as banks cut spending.

The Worldpay spinoff case seems straightforward. FIS shares trade at enterprise value to transfer less than 9x ebitda. Applying sector median multiples to FIS’s three main business segments (banks, merchants and capital markets), FIS could be worth about $64 billion. This is approximately 68% higher than the current valuation.

This is a generous forecast. There are good reasons to consider the ability to destroy the value of the FIS manager. Separating Worldpay alone will not solve the group problem.