Worldpay has lost its crown as the world’s number one merchant acquirer, although only by a very narrow margin. In each of the last four quarters, JP Morgan has processed a greater volume of payments.
Worldpay has been hobbled by having, in FIS, a cash-strapped parent unwilling or unable to invest. The challenges were spelled out earlier this year when FIS took an $18bn write down on its acquisition of Worldpay. We covered this in detail at the time. Now, Worldpay is to be spun-out of FIS as a joint-venture with GTCR, a Chicago private equity firm.
Meanwhile, Q2 results demonstrate the extent of Worldpay’s problems. Global payment volume grew 6% in Q2 to €591bn, once again lower than JPM which recorded an increase of 10% to $600bn. At Worldpay, another weak US performance (+4%) was offset by a healthier 11% increase in international volume but, over the last twelve months, JPM has processed $2287bn against $2266bn for Worldpay.
Underlining the reason for divesting its merchant solutions business, FIS reported Worldpay revenue rose just 1% in Q2 to $1.312bn “with similar sub-segment trends as seen in the first quarter”’ This likely means double digit growth in global eCommerce but continued revenue declines in the domestically focused US and UK businesses which are most badly in need of investment. Take rate fell 1bps to 22bps. ATV rose 2% to $46.17.
Worldpay adjusted EBITDA did rise but only by 3% to $634m. Margins expanded 120bps to 48.3% “as we grew our high-margin revenue streams across the operating segment and delivered on cost management.”
FIS management had first proposed a stock market flotation for Worldpay but now say that the partial trade sale is the best option as it can realise value faster and get a cash injection more quickly. It will sell 55% of Worldpay to GTCR, a private equity business with one successful payment investment under its belt. GTCR bought Sage Pay US in 2017 for $260m, floated it as Paya and sold it to Nuvei earlier this year for $1.3bn. Worldpay’s new valuation of $18.5bn is rather less than the $43bn FIS paid for the company in 2019. However, the price does represent 10x EBITDA, which is in excess of the 8x valuation of FIS as a whole prior to the announcement. To financial analysts, this represents value creation.
Looking ahead, management says that Worldpay “will remain an important partner and distribution channel for FIS” and that Worldpay will continue to benefit from access to FIS banking technology services and solutions. Backing from GTCR will “also ensure that Worldpay will have ample access to capital to pursue near-term inorganic growth opportunities.” Now is a good time to be shopping for payment capabilities. Valuations are lower than they have been for some time and we can expect Worldpay’s new owners to move fast to make up for its wilderness years with FIS.