Industry Overview

Worldpay is a payment services provider which handles more than 11bn transactions per year through web, card and other mobile instruments. Its strength relies on the security of the products it offers and in its ability to satisfy the payment needs of 400,000 clients. Their customers are different in size and industry, ranging from small businesses to airline companies, as well as big retailers such as Marks, Spencer and Tesco.

Looking at the overall payments industry, we can see that it is experiencing a significant growth which started in 2014, also due to the role of big players such as Amazon and Apple, who confirmed their willingness to increase their presence in the field by launching new products like Amazon Local Register and Apple Pay.

According to analysts, one driver of this trend is the new U.S. regulation requiring compliance of card processing systems with EMV chip and PCI standards. This has lead to an increase in sales due to the better security conditions and authentication of cards’ users (EMV technology), as well as more reliable protection of customers’ private information (PCI standards).

Worlpay’s IPO is likely to be followed by the one of its main competitors: First Data, which operates in the United States.

Transaction Drivers

Worldpay’s decision to go public has been weighted against takeover proposals by Germany’s Wirecard, a private equity consortium comprising Blackstone, Hellman&Friedman and France’s Ingenico. The French rival would probably have been in pole position had Worldpay decided against the IPO: it offered £6.6bn for the acquisition, which was ultimately rejected by management in favor of flotation.

The two options have been valued in terms of risks they posed for the company. Ingenico’s takeover proposal was rejected in fear that the French group would have struggled to raise financing in equity markets, necessary for its all-cash bid. The rejection of the bid has been welcomed by Ingenico investors, as company shares increased 9% on Friday morning.

Management of Worldpay had been in favor of a public offering from the start, however, the strategy posed risks as well. The flotation could have exposed Worldpay to post-China market volatility. The IPO timing could have also meant competition for investors’ attention with First Data, a US rival also preparing for listing in NY. Ultimately, the response of institutional investors interested in buying shares is what put management in favor of floating. Indeed, the share offering was ultimately covered more than 7 times by demand from investors. The IPO effectively represents a bet on Worldpay’s share price performance: the company has been monitored by private equity investors to test if an IPO stands against offers from corporate bidders in terms of obtaining the best possible exit price.

The most salient driver of this transaction is growth potential, offered by the market environment where significant investments have already been undertaken. In particular, Worldpay plans to double its size over the next five years through both organic and non-organic growth. GDP growth in countries served by the company translates to an increased amount of payment transactions, which contributes to organic growth. Furthermore, the continued trend away from cash to alternative forms of payments should help Worldpay reach its target. In the words of Jansen, the key “competitive advantage” of the company lies in its unique technology platform, able to handle more than 300 different payment systems all over the world, making it possible to build a one-click payment system. According to management, the fragmented market characteristics of the industry offer great potential for consolidation and market leadership, which is supported by Worldpay’s yearly acquisitions of smaller firms.

Terms and structure

Worldpay has been valued at £4.8 billion, making it the biggest listing on the London Stock Exchange since 2013. Moreover, the company may be included to the FTSE 100 after the next revision of the index. The IPO of the firm consisted of 900 million, priced at £2.4 per share with a 15% over-allotment option but closed 10.4% higher at £2.65.

The firm expects to keep approximately £897.5 million after the underwriting commissions. It will use the proceeds to reduce the outstanding debt and boost growth.

Advent International and Bain Capital remain the biggest shareholders with total holdings of 49%. The second largest shareholder is Blackrock with 6.25%, followed by the employees of the payment processor which hold around 4.25 % of the shares and according to the lock up agreement are not allowed to trade them for 180 days.

Merrill Lynch, Goldman Sachs and Morgan Stanley were the joint global coordinators, meanwhile Credit Suisse, Barclays and UBS were joint bookrunners. The financial advisor to Worldpay was Lazard.

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To contact the authors:

Adele Bertolino                    adele.bertolino@studbocconi.it

Giulio Tanzi                         giulio.tanzi@studbocconi.it

Dimitar Stoyanov                dimitar.stoyanov@studbocconi.it

To contact the editor responsible for this article:

Steven Suskauer                steven.suskauer@studbocconi.it