The New York based, publicly listed, private equity giant KKR, which is led today by two of its founders Henry Kravis and George Roberts, announced today it would be leading a private placement of US$3. 5 billion of new equity capital for the First Data Corporation, a company which KKR, and certain investment funds KKR manages, acquired 100% of the shares of in October 2007 for US$26 billion.
First Data Corporation is a global payment processing company headquartered in Atlanta, Georgia, United States, which provides electronic commerce and payment solutions to the international payments processing industry.
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The purchase by KKR, which was consummated during the over-heated period of frenzied deal-making just prior to the last recession, was one of the largest leveraged buy-outs in US history. First Data was privatized by KKR at the time at a 26% premium to its then current market price on the New York Stock Exchange. First Data had earlier belonged to American Express, until it was spun out as a public company initially in 1992, and Western Union was also part of the First Data group until it was spun out in 2006.
When the 2008 recession then immediately hit, First Data struggled as payments processing volumes plummeted just as it was required to service over US$24 billion in debt taken on for the acquisition. Even just in the last three calendar years alone it still accumulated US$2 billion in net losses although at the cash flow line, before amortization of acquisition goodwill, its results have looked much less damaging.
Even so, adding new equity capital now the economy is finally recovering is a statement of confidence by KKR in its core business. In addition, a new CEO Frank Bisignano has been on board now for a year now, rattling the cages of everyone to perform. Even though it is a privately held company First Data publishes regular financial statements as there are debt issues outstanding in public hands.
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The US$3.5 billion of new money comprising the private placement includes US$1.5 billion coming from existing investors and US$2.0 billion from completely new investors, including a diverse group of pension funds, mutual funds, asset managers and high net worth individuals.
KKR itself provided approximately US$1.2 billion, including US$500 million from its 2006 Fund on behalf of its investors, plus US$700 million directly from its own balance sheet. After the deal closes, KKR will have a total of approximately US$1.0 billion of its own money invested in First Data’s equity, through general partner and limited partner interests – in other words KKR is doubling up on its own original investment.
Frank Bisignano said with the announcement, “We have taken full advantage of the last 12 months to strengthen our company through a total focus on serving our clients and bringing them new innovations that help them grow their business, ” adding, “The enthusiastic response to our strategic vision and the resulting $3.5 billion investment in the future of First Data, demonstrates confidence in the strategy on which we’ve embarked and validates the outstanding work of our 23, 000 employee-shareholders. The new investment will unlock $375 million per year to help us accelerate our transformation.”
Henry Kravis, Co-Chief Executive Officer and Co-Chairman of KKR and a member of First Data’s Board of Directors said, “We are pleased to be joined by several investors who saw, as we do, that Frank’s team is able to successfully combine First Data’s existing unique assets with cutting-edge technology that we believe will take the company to the next level in the months and years ahead, ” adding, “Over the last year, the company has made great strides to solidify its role as a provider of solutions to its clients who span the globe.”
There is no doubt that, in general, a number of new players, from Apple, to Google, to Amazon, are circling around the payments space seeking to capitalize on the trends towards mobile. In the meanwhile established card carriers Visa, Amex and Mastercard have not been idle either, and are rapidly adding smart card technology to maintain their dominance as the new trends evolve. Clearly with this investment KKR are saying they intend to still be there within this space and are putting their money where their mouths are.
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