UK’s Worldpay A Good Fit For JPMorgan: Credit Suisse

A June 8th report from Credit Suisse Equity Research suggests that the rumors circulating about JPMorgan making a bid for UK-based payments processor Worldpay may have legs.

The Sunday Times reported that U.S. megabank JPMorgan was preparing to bid $9 billion for privately-held Worldpay, a large UK payment processor and merchant acquirer. Susan Roth Katzke of Credit Suisse notes that this deal “would be consistent with JPMorgan’s determination to lead in payments innovation; it would also meaningfully build JPM’s non-US merchant services business.”

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JPMorgan Worldpay

More on Worldpay

The CS report notes that Worldpay is a leading British payment processor and one of the largest merchant acquirers in Europe. Of note, the firm is co-owned by Advent International and Bain Capital. The business produced £3.65 billion in revenues (+8% Y/Y) and £0.4 billion of “underlying EBITDA” (in U.S. dollars: around $6 billion in revs and around $0.6 billion EBITDA) in 2014.

Roth Katzke also highlights that Worldpay has been an active acquirer of new and complementary businesses and technologies over the last couple of years.

Strategic value to JPM

JPMorgan Worldpay

Worldpay would be a valuable acquisition for JPMorgan Chase as it is a leader in the U.S. merchant services business (it is the number one wholly owned merchant acquirer according to 2013 Nilson data; $848Bn in merchant processing volumes, +13% Y/Y, in 2014). As the report notes, an acquisition of Worldpay would clearly complement JPMorgan’s U.S. market position by providing a leading platform in Europe and a rapidly growing Asian presence.

The Sunday Times reported that knowledgeable sources had suggested a price of around $9 billion for the deal. Roth Katzke also points out that as of the end of 2014 there was $3.6 billion of net debt on Worldpay’s balance sheet. There will, of course, also likely be substantial technology spend, infrastructure, and funding cost synergies if the deal goes through.

The Credit Suisse analyst points out that Worldpay is a fee based, less capital intensive business. She forecasts a build to fully phased in CET 1 of 11%+ by YE 2015 (12%+ by YE 2016), and says she “believes JPMorgan has ample capital capacity to do this deal.”