Sale of Fifth Third Processing Biggest Such Deal in More Than a Year

In the biggest sale of a merchant acquirer in more than a year, private-equity firm Advent International Corp. will take a 51% stake in Fifth Third Processing Solutions through a deal announced today with the big processor's parent company, Fifth Third Bancorp. Boston-based Advent will pay $561 million in cash for its majority stake. Charles Drucker, FTPS president, will become chief executive of the joint venture Advent and Fifth Third are forming, Fifth Third Processing Solutions LLC. Cincinnati-based Fifth Third Bancorp will own 49% of the venture. Fifth Third says its processing platform will remain the same and merchants will continue to be served by the same people who serve them today. The pending deal marks the first transaction involving a sizable payment processor since the flurry of deals completed or announced in 2007, just before the capital markets crashed. “It could be the spring thaw,” says merchant-acquiring consultant Paul R. Martaus, president of Mountain Home, Ark.-based Martaus & Associates. “It's about time something happened in this industry. It's been incredibly quiet.” Stung by loan losses, Fifth Third will use the sale proceeds to shore up its capital base. The company already has received $3.45 billion in bailout funds through the U.S. Treasury Department's Troubled Asset Relief Program, or TARP, according to published reports. “This transaction represents the culmination of work we began last summer as part of our capital plan announced in June,” Kevin T. Kabat, Fifth Third Bancorp's chairman, president, and chief executive, said in a news release. “It is expected to generate meaningful additions to our tangible common equity and Tier 1 capital ratios, reflecting the value of the business as a whole, while at the same time enabling us to retain significant ownership in the joint venture and its ongoing creation of value.” A bank spokesperson would not comment about how the deal came together. The Wall Street Journal said on Monday that both Visa Inc. and MasterCard Inc. were interested but ultimately took a pass. A spokesperson for Advent, which was founded in the late 1980s and has invested in more than 500 companies, would say only that that it has been working with Fifth Third since 2008's third quarter. Pamela Patsley, the former boss of what is now merchant acquirer Chase Paymentech Solutions LLC and former head of First Data Corp.'s international division, helped arrange the deal, according to the release. Patsley, who is executive chairman of wire-transfer firm MoneyGram International Inc., joined Advent last April as one of approximately 50 so-called operating partners. Her job is to find prospects for Advent, which has done payments-company deals in the U.S., France, and Brazil. Advent sold money-transfer provider DolEx Dollar Express to Global Payments Inc. in 2003. “The very fact that she's got her fingers in it is a positive,” says Martaus. Advent did not make an executive available for comment. The spokesperson notes that Fifth Third Processing Solutions is the fourth-largest merchant acquirer and seventh-largest electronic funds transfer/debit processor in the U.S. “We see the investment in FTPS as an opportunity to acquire a sizable, growing, recession-resistant merchant-acquiring and payment-processing business,” the spokesperson says via e-mail. “Both the financial-institution/EFT processing and merchant-acquiring segments are benefiting from the consumer trend toward electronic payment.” Advent's Web site says the firm has taken more than 140 of its portfolio companies public. Whether that's in the cards for FTPS is not known, but the spokesperson says, “all strategic alternatives are available to Fifth Third Processing Solutions and Advent is not precluding any of them.” In 2008, Fifth Third Processing Solutions processed more than 28.4 billion ATM and point-of-sale transactions and about $292 billion in debit and credit card sales volume, according to the release. FTPS supports more than 171,000 merchant and financial-institution locations and 11,000 ATMs in 44 states and 11 countries. Fifth Third Bancorp's latest annual report says merchant-processing revenues rose 11% in 2008 to $341 million while processing revenues from financial institutions rose 6% to $324 million. FTPS posted net income of $182 million in 2008, up 12% from $163 million in 2007, while the parent company suffered an overall loss of $2.18 billion last year. Advent and Fifth Third expect to close the transaction in the second quarter, pending regulatory approvals. The deal values FTPS at $2.35 billion before adjustments that could reduce the implied valuation by $50 million. The new venture will be funded by $1.25 billion in loans from Fifth Third subsidiaries. The biggest of 2007's payment-processor ownership changes was the $29 billion buyout of First Data Corp. by Kohlberg Kravis Roberts & Co. (Digital Transactions News, Sept. 25, 2007). Other transactions included the buyout of Ceridian Corp., the sale of eFunds Corp. to Fidelity National Information Services Inc., and the spinoff of Metavante Corp. by banking company Marshall & Ilsley Corp. The Blackstone Group's planned buyout of Alliance Data Systems Corp. failed last year.