The world of payments is fraught with risk and uncertainty. As any corporate executive knows, even the most seemingly secure deals can turn sour in an instant. Such was the case with the failed merger between Worldpay and FIS, a $35 billion deal that fell apart due to its own hubris. In this article, we’ll explore what caused the collapse of the Worldpay-FIS merger, from its initial optimism to its ultimate demise. We’ll also look at some of the lessons that come out of this failed deal, so you can avoid a similar fate. So buckle up, as we dive into the ‘original sin’ that led to one of the biggest payment industry failures in recent years.
Worldpay’s original sin
Worldpay’s original sin was its decision to go public in 2015. This was a classic case of Wall Street greed getting ahead of Main Street common sense.
The pressure to meet quarterly earnings estimates is intense for public companies. This pressure can lead to bad decisions, like cutting corners on customer service or product quality, in order to make the numbers. It can also lead to M&A activity that is more about boosting the stock price in the short term than creating long-term value.
That’s what happened with Worldpay. In order to meet its earnings targets, Worldpay went on a acquisition spree, buying up smaller rivals. It also took on a lot of debt to finance these acquisitions.
This strategy worked in the short term, as Worldpay’s stock price rose and it met its earnings targets. But it left the company vulnerable when the economy turned south in 2016 and 2017. The debt became unmanageable and the acquisitions proved to be value-destructive rather than value-creating.
In retrospect, it’s clear that Worldpay should have stayed private a little longer and let its organic growth continue. That would have made it a much stronger company today and might have avoided the need for a merger with FIS in the first place.
The collapse of the Worldpay-FIS merger
It was the “original sin” that led to the collapse of the Worldpay-FIS merger: a failure to adequately assess and disclose the true value of Worldpay’s technology assets.
In the months leading up to the announcement of the merger, Worldpay’s management team engaged in extensive due diligence with FIS, providing them with access to all aspects of the business. However, there was one key area that was not fully explored: the true value of Worldpay’s technology assets.
When the deal was announced, it quickly became clear that FIS had significantly underestimated the value of these assets. As a result, Worldpay’s shareholders were left feeling cheated and betrayed, leading to a wave of lawsuits and ultimately scuttling the deal.
This collapse is a cautionary tale for any company considering an acquisition. It is essential to conduct a thorough and honest assessment of all assets before moving forward. Otherwise, you risk ending up with a deal that falls apart – and taking your business down with it.
What could have been done differently?
When Worldpay and FIS first announced their merger in 2019, it was seen as a match made in heaven. Worldpay was a leading provider of payment processing services, and FIS was one of the largest financial technology firms in the world. The two companies had complementary businesses, and the merger was expected to create a payments powerhouse.
However, just 18 months after the merger was announced, it became clear that all was not well. In February 2021, Worldpay and FIS announced that they were terminating their merger agreement. What went wrong?
There are a number of factors that contributed to the collapse of the Worldpay-FIS merger. First, there was regulatory pressure on the deal from the start. The U.S. Department of Justice (DOJ) raised concerns about the impact of the merger on competition in the payments industry. Second, integration challenges proved to be more difficult than expected. The companies struggled to combine their disparate systems and cultures. Finally, Covid-19 hit just as the companies were trying to finalize their merger, adding more uncertainty and disruption to an already complex process.
Looking back, there are a few things that could have been done differently to improve the chances of success for the Worldpay-FIS merger. First, more time could have been spent on addressing regulatory concerns upfront. Second, a more detailed integration plan could have been developed to better manage the challenges associated with combining two large organizations. Finally, Covid-
Conclusion
The collapse of the Worldpay-FIS merger serves as a lesson to all major corporations that due diligence and precise financial forecasting are unavoidable steps in conducting any successful business transaction. The ‘Original Sin’ of not taking into account the potential for increased costs has resulted in a costly failure which could have easily been avoided had proper planning been done from the beginning. In spite of this unfortunate situation, we can learn from it and use it as an example for how important it is to properly research and plan when preparing for future deals.
