- Analyst says deal makes sense, but questions multiple paid
- S&P cuts TSYS credit rating over plan to finance cash purchase
Total System Services Inc. fell the most in 12 years as some analysts said the payments processor overpaid in acquiring Vista Equity Partners’s TransFirst for about $2.35 billion.
TSYS tumbled 15 percent to $39.22 in New York, the most since January 2004 and the worst performance in the Standard & Poor’s 500 Index. The shares have declined 21 percent this year, compared with the 7.9 percent drop in the benchmark index.
The all-cash deal will push Columbus, Georgia-based TSYS to sixth place among so-called U.S. merchant acquirers by revenue, the companies said Tuesday in a statement. S&P lowered its corporate credit and debt ratings two levels for TSYS to BBB- from BBB+ on Tuesday, as the company borrows to complete the deal. The firm will pay 13.8 times 2016 earnings before interest, taxes, depreciation and amortization for TransFirst, which is a premium compared to some recent acquisitions in the industry, according to Jason Kupferberg, an analyst with Jefferies Group LLC.
“While we like the strategic rationale of the acquisition, we are less excited about the multiple paid and how the Street will react to additional leverage,” Kupferberg said in a note to investors.
Excluding one-time costs from the merger, TSYS’s move will boost adjusted earnings per share “in the low double digits" during the 12 months after the deal is completed, probably next quarter, according to the statement.
Payments companies are rushing to consolidate as consumers increasingly embrace electronic systems such as credit cards and mobile phones, rather than cash and checks. Established firms are scooping up smaller competitors and merging with companies abroad, repositioning themselves as technology evolves.
In December, Global Payments Inc. agreed to buy Heartland Payment Systems Inc. for $4.3 billion, combining two of the largest merchant acquirers, or companies that provide technology to help businesses process credit and debit transactions.