Vantiv Seeks More Than Double Peers’ Value in IPO

Vantiv Inc. (VNTV), the payment processor that started as a unit of Fifth Third Bancorp (FITB), is asking investors to pay more than double the value of its peers to lower interest payments holding back profit growth.

The company, which describes itself as the biggest handler of U.S. debit-card purchases, plans to raise as much as $529 million, offering 29 million shares for $16 to $18 apiece today. Proceeds will be used to repay debt that cost Vantiv $68 million in interest last year, according to a regulatory filing.

Vantiv, based in Symmes Township (14458MF), Ohio, would be valued at about $3.6 billion at the midpoint of the price range, or 43 times 2011 earnings, compared with an average of 20 among peers such as Global Payments Inc. (GPN), data compiled by Bloomberg show. While savings on interest would bring Vantiv’s valuation down to 32 times earnings, costs tied to its remaining $971 million in debt may still pose a burden, said Tom Mangan at James Investment Research.

“There is substantial risk to maintaining high levels of debt,” said Mangan, who helps oversee $3.5 billion in assets and is based in Xenia, Ohio. “With interest rates at historic low levels, they’re only going to go higher. If you have a hiccup in your earnings, then you have losses.”

More Expensive

By comparison, Global Payments, with a market value of $4.1 billion, trades at about 18 times last year’s earnings, while Total System Services Inc. (TSS) is valued at $4.3 billion, or 19 times profit. Vantiv names those companies as competitors in its filing.

A spokesperson for Vantiv, owned by Fifth Third and Boston- based private-equity firm Advent International, declined to comment, citing a pre-IPO quiet period.

Gaston Ceron, a Chicago-based analyst at Morningstar Inc. (MORN), said investors may be willing to pay a premium for a company poised to grow faster than rivals. Vantiv’s net income rose 54 percent last year to $84.8 million, as revenue jumped 40 percent to $1.6 billion, boosted by acquisitions and market growth. U.S. consumer spending using cards and other electronic payments should expand 8 percent annually to reach $7.2 trillion in 2015, Vantiv said in its filing, citing the Nilson Report.

“They’re going to grow in the near term faster than the broad industry,” said Ceron, who predicts Vantiv’s sales will rise about 11 percent a year for the next three years and estimates the company is fairly valued at $16 a share. “They’re moving into new geographies, stepping out from Fifth Third’s shadow and coming into their own.”

Acquisitions

Vantiv completed three acquisitions in 2010: NPC Group Inc. to access more small and mid-sized merchants; assets from Town North Bank to access more credit unions; and assets from Springbok Services Inc. to expand in prepaid processing.

Pre-offering net debt, including cash of $371 million, totals $1.4 billion, or 3.6 times last year’s earnings before interest, taxes, depreciation and amortization of $384 million. The IPO proceeds would help reduce net debt to about 2.5 times Ebitda, still a higher level than peers.

“You don’t want to be an outlier,” said Greg Smith, a Woodland Hills, California-based analyst covering financial- technology companies such as Global Payments and Heartland Payment Systems Inc. (HPY) “They want to get that leverage ratio down to a range that public investors are more comfortable with.”

Heartland’s net debt was 0.3 times full-year Ebitda at the end of December, and Global Payments had more cash than long- term debt as of Nov. 30, Bloomberg data show.

Vantiv’s Owners

Advent bought 51 percent of Vantiv, then known as Fifth Third Processing Solutions LLC, for $561 million in March 2009, according to a statement on Fifth Third’s website. Cincinnati- based Fifth Third, Ohio’s largest lender, maintained 49 percent ownership of the business. Advent and Fifth Third aren’t selling shares in the offering.

Moody’s Investors Service placed its Ba3 rating of Vantiv’s debt, or three steps below investment grade, on review for a possible upgrade after the company announced its IPO plans, according to a Feb. 22 statement. That same day, Standard & Poor’s also said it may raise its B+ rating on Vantiv.

The stock will be listed on the New York Stock Exchange under the symbol VNTV and start trading tomorrow. JPMorgan Chase & Co. (JPM), Morgan Stanley (MS) and Credit Suisse Group AG (CSGN) are managing the sale.

To contact the reporter on this story: Lee Spears in New York at lspears3@bloomberg.net

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net

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