FIS knew the Worldpay integration was failing and management papered over the consequences, according to a shareholder lawsuit that finally wrapped up in July. It settled for $210M.

Synergy was management's favorite word (“improperly defined,” according to the court’s summary of the lawsuit) until dissynergies was legally obligated. What would be a strategic synergy wasn’t clear.

From the merger announcement deck:

 After the Worldpay announcement, Robert Tietelman of Barron’s politely wrote:

 “...it’s disconcerting that FIS argues the strategic rationale of the deal on a blast of overheated marketing.”

…especially since Vantiv itself was still digesting its $10.4B acquisition of the old Worldpay.

Early signs of synergy, paraphrased from an FIS employee: “Well, I’m getting a new colleague every day.”

FIS allegedly tried to sell Worldpay in summer 2022, but kept its public expectations for total synergies and other merger outcomes.

The sharks started circling: D.E. Shaw and JANA Partners bought in.

On November 3, 2022, the three-year-old landslide came crashing down. The merchant business struggled. Guidance collapsed. And the stock dropped by a third.

Chief Architect Gary Norcross retired before Christmas.

FIS never said it did something wrong, but the people who pulled the trigger would rather forget that it happened. In February 2023, $17.6B in goodwill vanished into thin air.

The acute problem was that FIS overpaid and overpromised for what looked like a last-minute, me-too merger (chasing Fiserv and First Data); the logic problem was that the businesses didn’t belong together.

Per the lawsuit, management overstated the merger’s potential returns, swept unrelated sales into synergies, and masked declining sales at Worldpay. 

Per anyone: the Worldpay deal as it was done was doomed. The questions were “when” and “how,” not “if” it would unwind. Then it unwound spectacularly.

FIS sold 55% of Worldpay to private-equity firm GTCR, then within two years, the rest of its stake to Global Payments. Crude purchase-price-versus-sale-price math says it lost $29.6B.

A maxim among buyout-watchers: “In M&A, the bankers and lawyers are the only ones who make money.”

Worldpay was never worthless; it just belonged alone or in a merchant payments business, and was worth far less than FIS paid.

GTCR did just fine. It financed the FIS deal with $8.4B in new WorldPay debt and $5.3B in equity; GTCR flipped its stake for $9.4B in cash and Global Payments stock.

If FIS had done a deal in 2019, it should have been TSYS. (Global Payments bought TSYS later that year; it became the Issuer Solutions business unit.)

It fits: Issuer Solutions’ credit card processing combined with FIS debit card processing creates a gigantic debit/credit issuer-processor with extensive reach into tier-1 credit card issuers. 

Issuer Solutions drops directly into Banking Solutions alongside FIS’ debit-processing business. This time, the synergies are there.

FIS has two segments: Banking and Capital Markets. Issuer Solutions is a done deal, and doesn’t touch the capital markets business. Now, FIS is studying what it might sell from Capital Markets, according to its August earnings call. 

Management says it’s “looking at products within the segment that don’t fit the overall company’s strategic profile,” naming risk management and data analysis products. 

Those products would probably come from within the former SunGard, which FIS acquired in 2015 and which became the foundation of today's Capital Markets business. SunGard itself was a serial acquirer, assembling a portfolio of products from dozens of tuck-in acquisitions.

FIS would be digging piecemeal into a mature portfolio that it’s had for over a decade, into small SunGard acquisitions that for years haven’t seen the light of day. The next transactions should barely make the news.

How should FIS pick apart Capital Markets? Fintech Notebook will take a look at a later date.

Thanks for reading Fintech Notebook: A skeptic’s take on emerging B2B fintech through product architecture, market structure, customer behavior, and business strategy.

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