FIS nears capital markets acquisition
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Fidelity National Information Services is close to completing an acquisition in the capital markets segment of its business, the company’s chief financial officer said at an investor conference last week.
The capital markets division is the smaller of two FIS segments that following the company’s sale this year of a majority stake in its Worldpay merchant services business to the private equity firm GTCR.
FIS Chief Financial Officer James Kehoe disclosed the “imminent” capital markets acquisition during a discussion of the growth outlook for the company last week. The capital markets division provides risk management, treasury, lending and other services to asset managers, brokerage firms and insurers, among other clients.
“We're quite close to a decent-sized acquisition in capital markets,” Kehoe said at a UBS investor conference last Wednesday. “So, we will have an acquisition impact next year, year-on-year. We've got some carry over impact, plus we have an imminent acquisition that, I think actually, we’ve signed.”
Kehoe didn’t elaborate on the transaction. FIS spokespeople didn’t respond to a request for additional comment.
FIS’s banking solutions business is the larger of its two segments, based on revenue. It sells software to financial institutions for processing payments, deposits, lending and other client account services.
FIS executives told investors earlier this year that the company would spend about $1 billion annually on acquisitions as it spools up growth across the two business segments. Nonetheless, Kehoe said last week the company is “unlikely” to spend $1 billion this year.
Before FIS sold its Worldpay stake, the company had experienced capital constraints that deterred it from pursuing acquisitions, the company’s executives have said.
The Jacksonville, Florida-based company’s CEO, Stephanie Ferris, outlined in May how the company would pursue tuck-in acquisitions in banking, and smaller purchases for capital markets to bolster revenue growth, with a faster rate of expansion expected for the smaller segment.
In the meantime, FIS is battling cost headwinds due mainly to short-term severance expense associated with the reduction of its workforce as it’s adjusting to the spin-off of the Worldpay business.
“It was the right strategic transaction, but it forced the company to spend a lot of money to resize the structure to the realities of a much smaller company,” Kehoe explained
The company expects to reduce annual operating expenses by $280 million this year, $190 million next year and $165 million the following year, according to the May investor day presentation .
The company is still evaluating how outsourcing, reducing layers of management and finding new avenues for automation can play a role in reducing costs, Kehoe said. Finance, legal and human resources are among the areas where FIS aims to slash costs as it pares operations, he explained.
Spokespeople for FIS also didn’t respond to questions about the number of jobs that are being eliminated.
In addition to acquisitions, the company is also spearheading growth by increasingly trying to bundle the sale of services, Kehoe said. Some FIS rivals have done a better job of that and it’s an area where FIS expects to increase its pricing power, particularly as it focuses on selling to community banks, he explained.
Also, FIS is investing more heavily in developing its digital products and its payments services to bolster revenue, Kehoe told UBS customers gathered for the conference.
For now, FIS has also been battling some “ultra-aggressive” cost increases imposed by infrastructure suppliers, Kehoe said.
For first nine months of the year, FIS’s revenue rose 5% to $7.53 billion as the company’s selling, administrative and general expenses climbed 9.4% to $1.7 billion, according to a third-quarter earnings report .