Processing titan First Data Corp.’s return to the stock market Thursday was met with a tepid response from investors in the Atlanta-based company.
First Data, which turned to the market to raise money to pay off debt, priced its initial public offering late Wednesday at $16 per share, which will raise $2.5 billion after fees. The company initially expected the range to be $18 to $20 per share.
In early trading today under the FDC symbol on the New York Stock Exchange, the stock opened at $16.39 and then ranged from $15.70 to $16.41.
First Data says it will apply $2.11 billion of the proceeds to debt payments, with the remainder used for other fees and general corporate purposes. First Data had $20.6 billion in long-term borrowings on its balance sheet as of March 31.
First Data executives were not available for comment this morning.
Payments analysts, however, generally express disappointment at First Data’s stock-market return.
While the pricing was not surprising, it likely was a disappointment to management and Kohlberg Kravis Roberts & Co. L.P., the private-equity investor that has owned First Data since a 2007 leveraged buyout, says consultant Eric Grover of Minden, Nev.-based Intrepid Ventures.
“When [First Data’s] CEO [Frank Bisignano] was on the road show he enthusiastically trumpeted First Data as a growth story,” Grover tells Digital Transactions News. “It’s not a growth story. The growth has been disappointing. They’re retiring debt, but it’s still enormously leveraged.”
The main challenge for First Data is paying down debt and refinancing what remains, analyst Gil Luria, managing director at Los Angeles-based Wedbush Securities, tells Digital Transactions News. “They have very expensive debt,” says Luria, adding that on average, the company pays 10% in interest. “First Data’s first focus is making sure it can generate the cash flow to continue to pay down its debt and justify lower [interest] rates.”
First Data has all the elements needed to spur growth, but hasn’t been able to get them to work together cohesively, Grover says. “They have the pieces,” he says. “In the eight years as a private company, they cycled through five CEOs. It’s hard to stay on course when leadership is a revolving door.”
Part of First Data’s dilemma, as Grover sees it, is that the processor’s business is not that much different from 2007, belying descriptions of the company as a transformation story. “It’s a little bit more efficient, which is good,” he says, but not much else has changed. “They have more distribution than anyone else, and that’s great, but one would have to be concerned they haven’t done enough with it.”
First Data’s performance contrasts with Square Inc., which filed for an IPO Wednesday. With initial expectations of raising $275 million, which may change, Square wants to use the funds for working capital, general corporate purposes and to make acquisitions.
“Whatever one thinks of Square, they’re growing what’s there,” Grover says. “I look at the portfolio of assets that is First Data and it’s hard to see where they have realized synergies across these businesses.”
First Data’s massive size makes it fundamental to the payments industry, Luria says. “After the big networks, no other payments company has the reach of First Data in terms of bank partners and the number of retailers they serve,” he says. “That’s why a healthy First Data is important for the functioning of the payments ecosystem.”
But with so much debt, First Data could find itself in a precarious position should the economy experience a downturn, Luria says. The variable interest rates First Data pays on its debt could increase, he says.
First Data, which operates in 36 countries and processed 74 billion transactions in 2014, says it is the largest merchant acquirer, serving 6 million locations, and the largest card-issuer processor, with 4,000 bank and credit-union clients. U.S. payment volume came in at $1.7 trillion last year.