Is First Data Corp. (NYSE:FDC) a Buy after $750 Million Takeover of Peer CardConnect?

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Shares of payment processors First Data Corp. (NYSE:FDC) and CardConnect Corp. (NYSE:CCN) rose on May 30th, after the companies announced a definitive merger agreement.

CardConnect Investor Report

The transaction will see First Data acquire CardConnect, its smaller peer, at $15 a share, for an aggregate value of $750 million. It also includes the settlement of CardConnect’s debt and the redemption of preferred stock.

First Data seeks to use a combination of cash and funds available under current credit facilities to fund the agreement.

According to a May 29th, press release, the deal has secured unanimous approval from CardConnect’s board and is expected to close in the third quarter of 2017.

Deal Benefits

First Data sees plenty of benefits associated with the agreement, given that CardConnect is already one of its largest distribution partners and processes about $26 billion of volume per year from approximately 67,000 merchant customers.

First Data expects an uptick in merchant retention with the help of CardConnect’s innovative partner management tools, while the latter’s capabilities are expected to bolster the company’s independent software vendor, or ISV initiatives and its enterprise resource planning, or ERP-integrated payment solutions.

Additionally, First Data anticipates the transaction to be modestly accretive to its adjusted EPS in the first full year following completion, before expected synergies.

“This transaction is consistent with our strategy of integrating and scaling innovative technologies across our distribution footprint to better serve our partners and customers,” First Data Chairman and CEO Frank Bisignano said in the statement.

Financial Results

First Data reported consolidated revenue of $2.8 billion in the first quarter, up 1% on a yearly basis.

The company also booked attributable net income of $36 million, reversing a net loss of $56 million recorded in the year-ago period. The results included debt extinguishment charges of $56 million.

CardConnect, meanwhile, reported a 20.5% year-on-year increase in first-quarter consolidated revenue at $156.7 million.

The company, however, sunk to a net loss of $1.6 million from a profit of $923,000 a year earlier.

Background and Key Shareholders

First Data prides itself as a global leader in commerce-enabling technology and solutions, serving about 6 million business sites across the globe.

In 2007, the company agreed to be acquired by private equity firm KKR in a deal valued at $29 billion.

Its largest stakeholder as of the end of March is FMR LLC, which held 47.8 million shares valued at $740.7 million.

CardConnect, meanwhile, is an innovative provider of payment processing and tech solutions. It has developed advanced payment solutions supported by PCI-certified point-to-point encryption (P2PE) and tokenization.

Capital Research Global Investors is the company’s biggest shareholder as of the end of the same period, owning about 2 million shares valued at $26 million.

First Data’s shares rose 1.08% to close at $16.82, while CardConnect stock surged 10.26% to end the day at $15.05.

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