Merchant Acquirer TransFirst Takes Another Stab at an IPO

Add TransFirst Holdings Inc. to the growing roster of payments companies turning to the publicly traded stock markets to raise cash. The big merchant acquirer late Friday announced it filed an S-1 registration statement with the U.S. Securities and Exchange Commission for an initial public offering of stock.

The filing, a necessary early step in the IPO process, does not list how many shares will be sold. The filing lists expected proceeds of $100 million, but that figure is a placeholder for calculating fees and is likely to change.

Hauppauge, N.Y.-based TransFirst plans to use most of the proceeds to pay down all of its outstanding debt and related fees. TransFirst listed outstanding long-term debt at $1.14 billion as of June 30. TransFirst executives were not available for comment.

TransFirst’s timing of its IPO is intriguing given the number of payments companies with IPO announcements, says Kurt Strawhecker, managing partner of Omaha, Neb.-based The Strawhecker Group, a payments advisory firm.

“The list includes Worldpay, First Data and Square,” Strawhecker says via email. “This would appear to indicate the overall strength and continued growth potential of the payments industry—especially in the face of a few other IPOs so far this calendar year.”

It may not hurt that payments is getting a lot of attention this year, especially among the broader consumer press because of the EMV migration and mobile commerce, he says. “Current public payment stocks such as Visa, Vantiv and MasterCard have been strong performers, so it may feel like a ripe time from the perspective of these investment entities to get these companies back into the public markets,” he says.

TransFirst initially prepared for a partial IPO in 2014. It later put that on hold when private-equity firm Vista Equity Partners, San Francisco, purchased TransFirst from Welsh, Carson, Anderson & Stowe, a New York City-based private-equity firm that bought TransFirst in 2007.

Friday’s filing reveals that TransFirst’s 2014 processing volume was more than $48 billion and it served more than 200,000 merchants. TransFirst says more than 92% of its overall processing volume goes over the Visa Inc. and MasterCard Inc. networks. It also is registered with American Express Co. and Discover Financial Services.

Many of TransFirst’s merchants were recruited through a network of 1,300 distributors, consisting of independent software vendors, value added resellers and referral partners like banks, trade associations and independent sales organizations.

In 2014, TransFirst’s revenues were $1.26 billion with a net loss of $8.7 million. Its cost of services and goods, which is primarily interchange and fees paid to issuers and payment networks, was approximately $1 billion in 2014.

For the first six months of 2015, TransFirst has revenues of $742.6 million and a net loss of $1.9 million. Interchange fees paid in the period were $607.2 million.

The filing also outlines TransFirst’s five strategies for growth, including working with existing partners and merchants, pursuing merchants within its existing base, producing new and more advanced payments products, broadening its distribution, and selectively pursuing acquisitions.

The S-1 also reveals that following an audit of its 2014 financials, TransFirst found an issue with its internal accounting controls.

“We determined that we did not have adequate procedures and controls related to our accounting and classification of certain debt and equity modification transactions in the consolidated financial statements as well as certain presentation matters related to the Merger Agreement,” the filing states, referring to the Vista acquisition of TransFirst.

TransFirst says it is remediating the issue by altering its in-house accounting and finance function to manage the complexities and requirements of being a public company. It also hired a consultant to evaluate how it handles complex transactions, and added internal reporting procedures. It also will document, assess and test its internal control measures to comply with the Sarbanes-Oxley Act.

TransFirst says that while it is attempting to complete the IPO process as quickly as possible, it cannot estimate how long it will take.

TransFirst’s announcement came just a day after leading payment processor First Data Corp. went public and two days after merchant acquirer Square Inc. announced a possible IPO.