DTN Readers Are More Skeptical Than Experts on Benefits of First Data IPO

By John Stewart

When First Data Corp. last month formally let the world know it intends to make an initial public offering of stock, the massive processor said it plans to use the IPO’s proceeds to reduce its big debt load. Some experts said this could free up capital so the company could invest more in new technology, make some key acquisitions, and expand internationally.

But Digital Transactions News readers are almost evenly split on whether the IPO will actually allow First Data to make those investments. Responding to a survey question, 48% of readers feel it is “very likely” or “somewhat likely” that a publicly held First Data will be better positioned to make strategic investments. But an almost equal number—44%—take the opposite stance, saying it’s “very unlikely” or “somewhat unlikely.” Another 8% feel the IPO will have “no impact” on the company’s ability to invest.

Some 25 readers responded to the poll question, which ran as the weekly “Question of the Week” in the July 24 issue of Digital Transactions News, a daily news service for the North American electronic-payments industry. First Data filed its registration statement with the Securities and Exchange Commission on July 20.

The company, which has been based in Atlanta in recent years but on the registration statement lists New York City as its address, is one of the world’s largest transaction processors on both the acquiring and issuing sides of card payments. But it has been saddled with a hefty debt load since it went private in a $29 billion leveraged buyout engineered in 2007 by Kohlberg, Kravis Roberts. The company reported $20.6 billion in long-term debt as of March 31. Its 2014 revenue totaled $11.2 billion, on which it earned a $1.4 billion operating profit. But debt-service costs whittled that margin down to a $458 million net loss.

While the DTN poll is not a scientifically designed survey, it indicates a sharp split among readers on the question of whether the injection of cash from the IPO will free up First Data to make key investments.

Even so, observers have pointed out that the company could expand into high-growth foreign markets. Currently, First Data derives 25% of its segment revenues from markets outside the Unites States, though it maintains operations in 36 countries.

Similarly, outside experts have pointed to opportunities for acquisitions and technology plays the new cash could bring. On the latter front, First Data has introduced a sleek line of tablet-based point-of-sale devices, called Clover, that have been developed by a company, Clover Network Inc., that it acquired in 2012.

First Data said at the time of its registration statement that it will not comment on the matter beyond the statement itself.