Key Takeaways
- • Global Payments (GPN) shares rose as much as 18% after the Financial Times reported that private equity firm Clayton Dubilier & Rice (CD&R), which manages about $90 billion, is pursuing a take-private deal, citing unidentified people familiar with the matter.
- • CD&R has teamed with GTCR, Global Payments' largest institutional shareholder with roughly 15% of the company, on a joint bid; talks are ongoing and a deal may not materialize, and any deal would likely carry a premium.
- • The FT reports the transaction would be one of the largest leveraged buyouts in history.
- • Peer payments stocks also rallied on the report: FIS +6.2%, Shift4 +4.7%, Fiserv +4.3%, Flywire +1.6%, PayPal +1.1%.
- • The author, a minority shareholder, calculates a control-premium intrinsic value of $45-$60 per share for Global Payments versus a post-rally price of about $96.84, implying the current price is roughly twice that level.
Summary
Bloomberg reported late last week, citing a Financial Times claim, that Clayton Dubilier & Rice (CD&R), an established private equity firm with roughly $90 billion under management, is pursuing a take-private transaction for Global Payments. Shares of the payments processor rose as much as 18% on the report. According to the FT, the firm has teamed with GTCR, Global Payments' biggest shareholder, on a joint bid. The FT's sources described the talks as ongoing, cautioned that a deal may not materialize, and said any transaction would likely include a premium. The report characterized the potential deal as one of the largest leveraged buyouts in history.
The rally extended across the sector, with Fidelity National Information Services up 6.2%, Shift4 up 4.7%, Fiserv up 4.3%, Flywire up 1.6% and PayPal up 1.1%. The primary source notes that legacy payments processors have underperformed for years, and that Fiserv has fallen toward five-year lows.
The author, writing as a minority shareholder, previously viewed Global Payments as a serial acquirer earning poor returns on acquisitions. At a share price of $96.84, the company carries a market capitalization of about $25.6 billion and net financial debt of roughly $17 billion. GAAP profitability has been minimal, with a trailing twelve-month loss of nearly $1 billion, though management presents the business as highly profitable on an adjusted basis. The author calculates an optimistic control-premium value of $45-$60 per share under a 15% annualized return assumption, concluding that the current price implies only about a 10% return for a control buyer. The author also questions whether private equity can generate significant returns in this sector, given the mixed results of prior large deals, and suggests that Worldpay (9.8x EBITDA) and Issuer (12.3x) transactions would be poor exit comparables. A buyout could nonetheless reset valuations for other legacy payments networks, which the author believes could make them takeover candidates. GTCR's roughly 15% stake, received when Global Payments acquired Worldpay from GTCR and Fidelity National, may be near break-even, and a deal could return it to par or better.
The rally extended across the sector, with Fidelity National Information Services up 6.2%, Shift4 up 4.7%, Fiserv up 4.3%, Flywire up 1.6% and PayPal up 1.1%. The primary source notes that legacy payments processors have underperformed for years, and that Fiserv has fallen toward five-year lows.
The author, writing as a minority shareholder, previously viewed Global Payments as a serial acquirer earning poor returns on acquisitions. At a share price of $96.84, the company carries a market capitalization of about $25.6 billion and net financial debt of roughly $17 billion. GAAP profitability has been minimal, with a trailing twelve-month loss of nearly $1 billion, though management presents the business as highly profitable on an adjusted basis. The author calculates an optimistic control-premium value of $45-$60 per share under a 15% annualized return assumption, concluding that the current price implies only about a 10% return for a control buyer. The author also questions whether private equity can generate significant returns in this sector, given the mixed results of prior large deals, and suggests that Worldpay (9.8x EBITDA) and Issuer (12.3x) transactions would be poor exit comparables. A buyout could nonetheless reset valuations for other legacy payments networks, which the author believes could make them takeover candidates. GTCR's roughly 15% stake, received when Global Payments acquired Worldpay from GTCR and Fidelity National, may be near break-even, and a deal could return it to par or better.
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