Fireserv Inc (FISV)

[wamutrader]

10/18 Yahoo Finance: Weak market for First Data IPO could help investors: FDC in my opinion is a good LT Value BUY opportunity at $16 because IPO is primarily paying down FDC debt.

http://finance.yahoo.com/news/weak-market-for-first-data-ipo-could-help-investors-114108910.html#

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10/18 Yahoo Finance: Weak market for First Data (FDC) IPO could help investors:

The company is looking to raise $3 billion by going public this week and reversing its disastrous 2007 leveraged buyout.

Spun off from American Express (AXP) in 1992, First Data was bought by KKR (KKR) for $26 billion eight years ago. Then the financial crisis hit and First Data's business cratered. At one point, KKR reportedly cut its valuation for First Data by 40%.

But times have changed. Two years ago, KKR brought in a new CEO, Frank Bisignano, a banker with long experience in credit cards and processing at Citigroup (C) and JPMorgan Chase (JPM). He raised $3.5 billion of private equity to cut the company's massive debt load. Now the proposed IPO could shave another $3 billion off its debt. If the deal succeeds, it will be the biggest IPO of the year by far (current title holder Tallgrass Energy raised $1.3 billion in May).

An opportunity to cut debt

The IPO market has been rough the past few months, with deal flow down 43% in the third quarter from last year. Recent market turmoil hit newly IPOed companies pretty hard. Renaissance Capital's IPO Index lost 17% in the third quarter versus the S&P 500's 7% drop.

But all of this may set up First Data for a decent valuation when it comes public. All of the proceeds are going to reduce debt -- cutting borrowings at interest rates of 11.25% and 12.625% -- and the company has said it also has opportunities to refinance at lower rates some of the $18 billion debt load that will remain after the IPO.

That could generate some net income -- the company lost $138 million in the first six months of 2015 but that was interest costs of $813 million. On a pro forma basis, interest costs would drop to $630 million for the half year given the debt that will be paid off.

And once the company gets out of debt jail, it's poised to take advantage of the continuing shift away from paying with cash to credit and debit. U.S. credit, debit and prepaid cards generated $5.2 trillion of transactions last year, up 8% from 2013, according to the Nilson Report.

"Using the cash to pay down debt is a big help to improve the cash flow situation," says William Preston, senior research analyst at Renaissance. And given the weak market conditions, "the valuation could be compelling."

Still, competition is coming from all directions, ranging from high tech upstarts Square and Stripe to more established processors like Heartland Payment Systems (HPY) and Fiserv (FISV). Revenue growth has been muted despite the continuing boom in credit card usage rates. Sales of $5.6 billion in the first half of 2015 were up less than 2% from the same period last year.

The IPO is being jointly led by Citigroup, Morgan Stanley (MS), BofA Merrill Lynch (BAC) and KKR. The underwriters have indicated that they want to price the deal at $18 to $20, but Preston says most IPOs in the past few weeks have hit the market at prices below the expected range. That's helped performance -- seven of the past eight deals then traded above their initial offering price.