Morningstar | Fidelity's Integration and Overseas Expansion Requires a High Degree of Difficulty
Fidelity National Information Systems will be a fundamentally changed company with the addition of Worldpay. We believe the company’s slowing growth necessitated a deal and that earnings growth will depend on a risky integration and introducing Worldpay to Brazil. While management makes impressive claims of $400 million and $500 million in cost and revenue synergies, respectively, investors should be skeptical, since these numbers haven’t been clearly defined and we doubt that some of the synergies will be sustainable long term. In the short to medium term, though, we believe the company’s adjusted margins will improve and the acquisition will look like a winner.With the inclusion of Worldpay, a little less than a third of the business will be derived from merchant acquiring, a business with good economics but lower switching costs than Fidelity’s legacy business. Management has said that its goal is to reach 8%-9% organic revenue growth within three years of the acquisition’s close. According to management's adjusted numbers, Fidelity is generating low-single-digit organic growth, and before being acquired, Worldpay was achieving high-single-digit organic revenue growth. We think this acquisition is motivated by growing challenges in Fidelity's core segments. Fidelity’s revenue synergies and growth targets depend on success in international markets, specifically Brazil, where it recently had a setback with partner Bradesco electing to end its joint venture. Given its recent issues, Worldpay’s success in Brazil isn’t a foregone conclusion, and though Fidelity’s global footprint is an advantage, it will still need to invest to acquire Brazil merchants as customers. This would detract from margins and put synergy targets at risk. We do believe there’s some opportunity for cost savings, as it appears Worldpay hasn’t been as aggressive in offshoring its back-office operations. Fidelity’s planned cost synergies account for 10% of Worldpay’s sales. However, if the company is introducing Worldpay in additional foreign markets, Fidelity will likely have to invest to achieve faster growth.Fidelity National Information Services is a provider of technology solutions for merchants, banks, and capital markets firms globally. The company's solutions include merchant acquiring solutions; payment solutions; global eCommerce solutions; processing and ancillary applications solutions; digital solutions; fraud, risk management and compliance solutions; electronic funds transfer and network services solutions; card and retail payment solutions; wealth and retirement solutions; item processing and output services solutions; securities processing and finance solutions; global trading solutions; asset management and insurance solutions; and corporate liquidity solutions.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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