First Data Corporation Acquires Card Establishment Services Inc.

Strategic Insights -

The world's largest credit card processor for banks, First Data Corporation, has agreed to purchase Card Establishment Services Inc. for $500 million in stock and $180 million of debt. This acquisition would make First Data one of the largest processors for merchants, expanding its business into a rapidly growing segment of the credit payment processing industry. The deal reflects the increasing consolidation in the industry, where processors aim to benefit from economies of scale by merging or acquiring other companies. However, the acquisition poses a risk for First Data, as it may put the company in competition with some of its bank clients in the merchant processing business.

Key Takeaways:

  • First Data Corporation will acquire Card Establishment Services Inc. for $500 million in stock and $180 million in debt, making it one of the largest processors for merchants.
  • The acquisition reflects the increasing consolidation in the credit payment processing industry, driven by the need for economies of scale.
  • The deal poses a risk for First Data, as it may put the company in competition with some of its bank clients in the merchant processing business.
  • First Data will process transactions for 75 million card holders across 700 banks in the United States, Mexico, Britain, and Saudi Arabia.
  • The company includes Chemical Bank and Bank of New York as its credit card processing clients.
  • First Data expects to grow Card Establishment's revenues at a 25 percent rate, following the acquisition.
  • The company has agreed to pay three and a half times Card Establishment's 1994 net revenues, which were $190 million.
  • Analysts have raised concerns that the acquisition may lead to First Data charging lower transaction processing prices, potentially disrupting the market and affecting competitors like First Financial Management Corporation.

Statistics:

  • $500 million: The amount First Data Corporation is paying in stock to acquire Card Establishment Services Inc.
  • $180 million: The amount of debt First Data agrees to assume from Card Establishment.
  • 25%: The rate of growth in revenues First Data expects from Card Establishment following the acquisition.
  • $190 million: The 1994 net revenues of Card Establishment Services Inc.
  • 3.5: The multiple at which First Data Corporation is paying for Card Establishment's revenues.
  • 75 million: The number of card holders First Data processes transactions for.
  • 700: The number of banks across the United States, Mexico, Britain, and Saudi Arabia that have clients processed by First Data.
  • 54.25: The price per share of First Financial Management Corporation's stock following the announcement.

Sources:

  • First Data Corporation, "Acquisition of Card Establishment Services Inc." [No date provided in the original text]
  • "Financial News, 4th August 1994"
  • Merrill Lynch & Company, "Credit Card Processing Industry Analysis" [No date provided in the original text]