Fidelity National Information Services (FIS) recently announced that is set to acquire Brussels-based Clear2Pay for approximately €375 million ($493 million). Fidelity expects to complete the transaction in the fourth quarter of 2014. The acquisition will be neutral to adjusted earnings for fiscal 2014.
Clear2Pay is a global provider of payment technologies and services. The company has a strong clientele in Western Europe, Asia-Pacific and the Americas. The Clear2Pay acquisition will expand Fidelity’s payments portfolio, thereby driving banking customer base over the long run.
Per research conducted by CEB TowerGroup, the global payments market is forecasted to grow to an estimated $1.6 trillion as revenues by 2020. This involves tremendous growth in payment volumes and types. However, payment infrastructure remains largely inflexible and incompatible to handle this huge surge in volumes.
As the banking and financial services industry becomes more customer-oriented, Clear2 Pay’s technology will help in acquiring, processing and clearing payments in a streamlined and secured way. Clear2Pay’s technology fast processes huge volumes at a much lower cost compared with legacy payment systems, which will ultimately expand profitability.
Acquisitions have been the key growth catalyst for Fidelity for some time. Over the last four years (2010-2013), it has acquired seven companies for $484.0 million. The acquisitions of Capco, Metavante, mFoundry and Reliance Financial has significantly expanded Fidelity’s product portfolio.
We believe that the company will continue pursuing small acquisitions that strategically fit its overall business mix and are easy to integrate. Moreover, Fidelity’s commanding position in the financial services market, increasing international exposure and recurring revenue model are the positives.
Moreover, the company continues to win contracts from banks and other financial institutions worldwide, which will further drive its market share. Additionally, we believe that increasing Europay, MasterCard and Visa (EMV) adoption in the United States will drive Fidelity’s top line in 2014. In this regard, partnerships with Visa (V) and MasterCard (MA) are the major tailwinds.
However, increasing consolidation within the banking sector, challenging environment for the Payments Solutions business and uncertain regulatory environment are the major headwinds. Also, intense competition from the likes of Fiserv (FISV) is a concern
Currently, Fidelity has a Zacks Rank #3 (Hold).
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