entered into an agreement to be acquired by an affiliate of private
equity firm Kohlberg Kravis Roberts (KKR) in a transaction with a
total value of $29 billion, making it one of the largest private
equity buyouts.
KKR’s acquisition of First Data was unanimously approved by the
First Data board of directors, based upon the recommendation of its
Strategic Review Committee comprised of three independent
directors. Under the merger agreement, First Data may solicit
proposals from third parties during the next 50 days, and its board
of directors said it intends to actively solicit proposals during
this period. However, First Data said that there could be “no
assurance that the solicitation of proposals will result in an
alternative transaction”.
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Completion of the transaction, which is subject to the approval
of First Data shareholders, regulatory approvals and customary
closing conditions, is expected by the end of the third quarter of
2007.
History of buyouts
Founded in 1976, KKR specialises in management buyouts. It has
completed and announced over 150 transactions with an aggregate
value of over $345 billion. The acquisition of First Data would
rival KKR’s 1988 takeover of US tobacco and confectionary giant RJR
Nabisco for $25 billion, which heralded the arrival of private
equity as a major force behind large-scale mergers and
acquisitions.
Ric Ducques, First Data’s chairman and CEO, said: “We are
pleased to reach this agreement with one of the world’s largest and
most successful private equity firms. We believe that current
market conditions present an exceptional opportunity to fulfil our
commitment to maximise the value of First Data by delivering an
immediate cash premium to our shareholders.”
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By GlobalDataScott Nuttall, a director of KKR, said: “Under the direction of
a world-class management team and with the strong support of its
committed employees, First Data is at the forefront of the
worldwide trend toward electronic payments. We believe that through
continued investments in its technology, people and customer
relationships, First Data will build on its history of innovation
and industry leadership.”
Industry consolidation
KKR’s acquisition of First Data comes at a time when the payment
processor has emerged from a restructuring and review of its core
business lines. In late 2006, First Data announced that it would
spin off its money transfer business Western Union in order to
concentrate on its international, commercial and retail processing
units. The deal marks the first large-scale private equity buyout
of a major worldwide payment processor, at a time when the payment
processing industry is undergoing a period of consolidation.
First Data itself recently embarked upon a wave of acquisitions
of smaller European payment processors in the run-up to the
implementation of the Single Euro Payments Area in 2008. Its most
recent acquisition was that of Polcard for $325 million, announced
in March 2007. Polcard is Poland’s leading independent merchant
acquirer and card issuer processor. The deal is strategically
important to First Data as Poland is the largest market of the
recent countries to join the European Union, with a population of
39 million, and also supports First Data’s expansion into Central
and Eastern Europe.
Commenting on the deal, Gareth Lodge, an analyst at global
researcher TowerGroup, said: “The deal is not a big surprise. As is
often the way, by preparing a business to grow and make
acquisitions, the company itself becomes an acquisition target.
Despite the restructuring, First Data has struggled to achieve
earnings growth. Typically private equity firms look to do one of
three things – break up the company, merge with a company with
complementary products, or invest and improve. The second option
looks unlikely; it would require further significant investment in
either time or money with only a limited pool of prospects. A
combination of one and three is therefore the most likely, with the
divesture based around geographic splits, and the money being
invested into the international arm of First Data.”
