First Data Buys CardConnect, Boosts Distribution Footprint

First Data Corporation (NYSE:FDC) has completed the acquisition of peer payment processor and its longtime distribution partner CardConnect Corp CCN in an all-cash transaction.

The company yesterday announced that it will buy all the outstanding shares of CardConnect for $15 per share. The collective transaction amount is about $750 million, encompassing repayment of CardConnect’s outstanding debt and the redemption of CardConnect’s preferred stock.

The announcement of the merger was first made on May 29. The company stated that it will be funding the purchase through a combination of its own funds and existing credit facilities.

The acquisition is anticipated to make a modest contribution to First Data’s adjusted earnings per share (EPS) in the first full year post closing. Better synergies are expected after that.

Investors will surely keep an eye on this new deal and its impact post closure to see if it could further boost the ongoing momentum in First Data’s shares. The stock has appreciated a huge 61.4% over the last one year against the Zacks Business Services industry’s loss of 1%.

Focus on JVs, ERP and Integrated Solutions

According to First Data Chairman and CEO, Frank Bisignano, “This acquisition allows us to improve our service offerings for our JVs and other distribution partners, accelerate our integrated solutions strategy, and enter the ERP integration business.”

It appears that with the transaction, First Data is focusing on a three-tier strategy. Through the acquisition, First Data gets access to CardConnect’s $26 billion worth of payments a year from 67,000 merchant customers. This is likely to boost its financial technology capacities.

Moreover, the addition of CardConnect’s invoice-to-cash processing capabilities will open up vast opportunities for First Data in the ERP space and help it better manage cash and other services for clients.

In addition, CardConnect’s Application Programming Interface (API) will offer First Data tools to connect with enterprise clients and their vendor ecosystems.

We expect minimal integration risk given First Data’s successful partnership with CardConnect.

First Data Corporation Revenue (TTM)

CardConnect Eyes Upselling and Cross-selling

Founded in 2006, CardConnect provides payment processing and technology solutions primarily in the United States. The company serves small-to-midsize businesses, related mobile app as well as enterprise-level organizations.

A merger with FirstData will give CardConnect access to its huge customer base and boost up-selling and cross selling. The company will get a considerably larger distribution network.

To Conclude

Bisignano has stressed on collaborating innovative technologies across First Data’s distribution footprint through the acquisition. He expects this integration to enhance service to partners and clients.

We believe that the CardConnect acquisition will help First Data better focus on globalizing its offerings and strategic partnerships along with boosting its business around enterprise clients.

Zacks Rank and Stocks to Consider

First Data currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader technology sector include Alibaba (NYSE:BABA) and PetMed Express (NASDAQ:PETS) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings per share growth rates for Alibaba and PetMed Express are projected to be 30.4% and 10%, respectively.

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