FIS - Fidelity National Information Services Inc. (FIS) Agreement for GTCR to Acquire Majority Stake in Worldpay Call Transcript

2023-07-11 14:47:08 ET

Fidelity National Information Services, Inc. (FIS)

Agreement for GTCR to Acquire Majority Stake in Worldpay Call

July 06, 2023, 09:30 AM ET

Company Participants

George Mihalos - Head of Investor Relations

Stephanie Ferris - Chief Executive Officer and President

Erik Hoag - Chief Financial Officer

Presentation

Operator

Good day, and welcome to today's call announcing FIS' agreement for GTCR to acquire a majority stake in Worldpay. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded.

I would now like to hand the call over to your speaker, Mr. George Mihalos, Head of Investor Relations. Sir, the floor is yours.

George Mihalos

Thank you, Sherine. Good morning, everyone. Thank you for joining us on today's call regarding FIS' agreement with GTCR to acquire a majority stake in Worldpay. This call is being webcasted. Today's news release, corresponding presentation, facts and webcast are all available on our website at fisglobal.com.

With me on the call this morning are Stephanie Ferris, our CEO and President; and Erik Hoag, our Chief Financial Officer.

Today's remarks may contain forward-looking statements. These statements are subject to risks and uncertainties as described in the press release and other filings with the SEC. Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Please refer to the safe harbor language.

Throughout this webcast, we will be discussing non-GAAP information, including adjusted EBITDA and adjusted net earnings per share. These are important financial performance measures for the company but are not financial measures as defined by GAAP.

We will not be taking questions on today's call because we are currently in quiet period ahead of our second quarter earnings announcement. We look forward to taking your questions at that time. In the interim, we posted a number of facts regarding the transaction in the Investor Relations website and are reaffirming our second quarter outlook.

I'll now turn the call over to Stephanie.

Stephanie Ferris

Thanks, George, and thank you, everyone, for joining us. I'll begin on Slide 5.

This morning, I am pleased to announce the acceleration of our path to create two highly focused independent companies with greater strategic flexibility. FIS has signed a definitive agreement to sell a 55% stake in the Worldpay Merchant Solutions business to GTCR. The transaction values Worldpay at $18.5 billion, inclusive of $1 billion in additional consideration that is contingent on the returns realized by GTCR exceeding certain thresholds. This transaction maximizes shareholder value by immediately securing proceeds based on a $17.5 billion valuation with opportunity for further upside.

The attractive upfront valuation equates to a 9.8-times multiple on expected fiscal 2023 adjusted EBITDA, inclusive of estimated dis-synergies and previously unallocated corporate and other costs. This multiple represents a 20% premium to FIS' recent valuation of approximately 8 times and is aligned with other leading scaled payments players. Including the $1 billion of contingent consideration, the multiple on the transaction would increase to approximately 10.4 times, a premium of approximately 27%.

We previously announced the spin-off of Worldpay on our February earnings call. Following that announcement, we received multiple expressions of interest in Worldpay from third parties. The Board and management team conducted a rigorous evaluation process, determining that this new separation path is in the best interest of FIS' shareholders and supersedes the value creation potential of a spin-off.

As part of the transaction, FIS will receive upfront net proceeds from the sale of approximately $11.7 billion at closing, and will retain a non-controlling 45% ownership interest in a new standalone joint venture with GTCR, in which FIS will have non-controlling governance rights. In addition, Worldpay will benefit from GTCR's payments expertise and experience with complex corporate carve-outs. Following this transaction, which is expected to close by Q1 2024, Worldpay will become a standalone independent company under the experienced leadership of Charles Drucker.

Turning to Slide 6. This transaction has a compelling strategic rationale, including accelerating our previously announced separation plan to create two highly focused global industry leaders. Both companies will benefit from increased management focus and operational simplification with FIS' retained stake and ensures a mutually beneficial continued commercial partnership between the two companies.

In addition, the substantial upfront proceeds create immediate capital allocation flexibility. The proceeds will transform FIS' balance sheet, allowing the company to delever to approximately 2.5 times, ensuring our attractive investment-grade credit rating and highlighting our financial stability to clients and colleagues. After delevering, FIS will have approximately $2.5 billion of additional capacity that we will use to maximize shareholder value primarily through share repurchase. GTCR has also committed up to $1.25 billion in additional funding available to support acquisitions for Worldpay.

Finally, this transaction crystallizes a highly attractive and market-aligned valuation for FIS' merchant business. Equally as important, FIS will retain a 45% interest in the joint venture, allowing FIS and our shareholders to participate in the returns that we hope to generate in partnership with GTCR.

This new separation path for Worldpay -- positions Worldpay for immediate and long-term success, as seen on Slide 7. It will allow Worldpay to focus on the distinct needs of its payments clients, and it guarantees Worldpay's right to win by combining the benefits of a well-established marquee brand with the energy of an independent private company, all under the leadership of Charles Drucker and backed by a world-class private equity firm.

As you know, Worldpay is the largest global merchant acquirer by transactions with $2 trillion in payments volume in 2022. And as I mentioned, GTCR is committed to invest up to $1.25 billion in equity capital to fund inorganic growth opportunities, which will allow Worldpay to enhance its competitive position. Worldpay will also benefit from the extensive resources and expertise of GTCR, which just recently concluded a successful $11.5 billion fundraise, targeting fintech and technology investments.

Finally, through commercial relationships, the Worldpay will continue to benefit from FIS' marquee products and client portfolio. The commercial agreements between FIS and Worldpay will help preserve our integrated value proposition for clients of both businesses while minimizing potential dis-synergies. This will allow Worldpay continued access to FIS' products like Premium Payback and our Quantum treasury solution to resell for the benefit of its clients and allow Worldpay continued access to FIS' C-suite level relationships within our financial institution clients as it continues to scale its bank channel. Similarly, these commercial relationships will continue to provide FIS with access to Worldpay's portfolio of commercial clients to resell our embedded finance offerings.

I'll now hand it over to Erik to provide an overview of financial details of the transaction.

Erik Hoag

Thank you, Stephanie, and good morning, everyone. I'll begin on Slide 8.

As Stephanie noted, this transaction will allow us to quickly and efficiently meet our goals of deleveraging the balance sheet and returning capital to shareholders. Immediately following the anticipated close, we expect to deploy the majority of net proceeds to debt reduction, reducing our leverage ratio to approximately 2.5 times and solidifying our investment-grade credit ratings. The remaining net proceeds of approximately $2.5 billion will principally be used for share repurchases as we see significant value in the current stock price for shareholders.

We're excited about the outcome of the strategic decision and remain confident in the underlying strength of FIS moving forward. Our durable business will continue to generate strong free cash flow and sustained operating results for years to come.

Finally, as we disclosed in our press release this morning, we expect to report strong second quarter results with revenue, adjusted EBITDA and adjusted earnings per share above the midpoint of our guidance ranges.

With that, I'll turn the call back to Stephanie on Slide Number 10.

Stephanie Ferris

Thank you, Erik.

As you are aware, we've been moving forward with a high sense of urgency and focus towards improving the performance of the business, free cash flow and capital allocation. We began this journey with the December launch of the strategic review, which coincided with my first month as CEO. We set a new agenda to ensure that clients are at the center of everything that we do to innovate across our portfolio of solutions and to simplify and streamline our operations, decision-making and time to market to improve profitability.

We've made tremendous progress delivering on our financial and strategic commitments to date, including on our Future Forward transformation program, and I'm incredibly proud of our team's hard work to drive efficiency, effectiveness and growth. We are pleased to accelerate the separation benefits through this transaction.

I'll conclude on Slide 11. Looking forward, we are tremendously excited about the bright future ahead for FIS. We will maintain our competitive advantage in delivering innovative next-generation financial technology and software solutions. Our scaled platform, innovative software and broad suite of solutions, leveraging cloud-native architecture, position FIS to capitalize on secular trends in large and growing markets.

Additionally, FIS has a durable and resilient business model that benefits from deep client relationships, long-term contracts and highly recurring revenue streams. We continue to enhance sales with a focus on sustainable growth and profitability to achieve efficiencies through our Future Forward enterprise transformation program and to simplify operations with a focus on client needs.

We are proud to have secured a compelling valuation for a majority stake in Worldpay, which also underscores the opportunity to create significant value for FIS by paying down debt and buying back our own shares at an extremely compelling valuation. We look forward to reporting second quarter results and further discussing the benefits of the transaction.

Thank you, and goodbye.

Operator

Thank you all for participating. This concludes today's conference call. You may now disconnect.

Question-and-Answer Session

End of Q&A

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Fidelity National Information Services, Inc. (FIS) Agreement for GTCR to Acquire Majority Stake in Worldpay Call Transcript