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The value of $1.8 billion doesn’t stretch as far as it once did. Just four years ago, Fidelity National Information Services (FIS) merged with Worldpay, a fintech company, valuing Worldpay at $43 billion. However, FIS recently announced that it will sell a majority stake in Worldpay to a private equity firm for a valuation of $18.5 billion.
At the time of both transactions, Worldpay had an annual EBITDA of around $1.8 billion. This means that the business’s valuation multiple has dropped from 24 times to 10 times in just a few years.
Both FIS and Worldpay were experienced acquirers, which gave them confidence to merge with the expectation of achieving “revenue synergies.” However, these anticipated benefits rarely materialize. Additionally, the fintech industry, once highly regarded, is now facing increased skepticism from Wall Street.
FIS specializes in back-office payment processing software for banks, while Worldpay provides payment processing services to retailers. The companies believed that by joining forces, they could generate $700 million in improved EBITDA through cross-selling and cost cuts, with revenue expected to grow by single digits.
In 2022, the combined company’s EBITDA reached $6.2 billion, a significant increase from the $4.9 billion achieved by the individual businesses in 2018. However, this fell short of the projected $7 billion. Furthermore, free cash flow was only $3 billion, lower than the projected $4-$4.5 billion.
The shareholders of the previous Worldpay and FIS have experienced the consequences of these underwhelming results. The 2018 deal mostly involved FIS shares, which initially performed well. However, since then, the shares have declined by 60%.
The disappointment in the supposed “synergies” from the deal is just one challenge. The fintech industry has struggled to match the growth, profitability, and capital efficiency of the best enterprise software companies.
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