=Total System Services (TSS) to be acquired by Global Payments (GPN) for $21.5 bln

• Financial technology companies Global Payments (GPN) and Total System Services (TSS) agreed to merge on Tuesday in a $21.5 billion all-stock deal, creating a stronger competitor in the merchant acquirer market. TSS stock rose on the deal combining fintech companies, while Global Payments stock edged down.

  

• ticker: TSS 

(Bloomberg) -- Global Payments Inc. agreed to buy Total System Services Inc. in a deal valued at $21.5 billion, the payment industry’s third mega-merger of the year.

The transaction will create a powerhouse that provides payment technology and software to more than 3.5 million small to mid-size merchants and more than 1,300 financial institutions worldwide, the two companies said in a statement Tuesday. The all-stock deal values Total System Services, or TSYS, at $119.86 a share, a 20% premium to its $99.62 closing price on May 23, before Bloomberg first reported deal discussions with Global Payments.

“The pace of change in the industry driven by innovation in technology, coupled with the need to have additional scale, had made this deal a function of a matter of time,” Global Payments Chief Executive Officer Jeff Sloan said in an interview. Sloan, who will lead the combined company following the transaction, said Global Payments and Total System had talked about combining a number of times over the past decade.

Negotiations between the companies became more serious a couple of months ago as rivals announced their own deals in a clamor for a bigger share of the nearly $100 billion merchants spend on swipe fees each year. Fiserv Inc. announced a $22 billion takeover of First Data Corp. in January, and rival Fidelity National Information Services Inc. agreed to buy Worldpay Inc. just two months later for $34 billion.

Deal Terms

Under the deal terms, Total System holders will get 0.8101 Global Payments share for each common share they own. Total System CEO Troy Woods will become chairman of the combined company, 52% of which will be owned by Global Payments shareholders, while Total System investors will own 48%.

The transaction, which is slated to generate $300 million in cost savings, is expected to close in the fourth quarter. After closing, the combined entity is expected to generate about $8.6 billion annually in adjusted net revenue plus network fees, with $3.5 billion in earnings before interest, taxes, depreciation and amortization and $2.5 billion in free cash flow.

“We are going to be in a position to continue to invest in growth and not be over-burdened with debt such that we can’t innovate and invest,” Cameron Bready, Global Payments’ chief financial officer, said in an interview. “At a time when our peers are fully levered, we will have plenty of firepower to continue to expand the business,” he said, citing specialized payments software and new geographies outside of the U.S. as growth targets.

New Behemoths

Total System Services is what’s known as an issuer processor, meaning it helps banks manage their credit and debit card portfolios for everything from card authorizations to detecting fraud and calculating rewards. The Columbus, Georgia-based firm is the country’s largest provider of such services, managing about 40% of Visa Inc. and Mastercard Inc. domestic accounts last year. Atlanta-based Global Payments, on the other hand, is the country’s fifth-biggest merchant acquirer, helping businesses handle credit and debit card payments.

The flurry of deal activity among payment processors has created behemoths that could fashion networks that serve and connect financial institutions and merchants, similar to Visa’s and Mastercard’s offerings.

Bank of America Corp. and JPMorgan Chase & Co. are advising Global Payments, while Goldman Sachs Group Inc. and Greenhill & Co. are assisting Total System. Wachtell, Lipton, Rosen & Katz is providing legal advice for Global Payments, while King & Spalding is helping Total System.