FIS to spin off Worldpay to sharpen strategic and operational focus

The news: FIS plans to spin off its merchant solutions business, much of which consists of Worldpay, per a press release.

• FIS expects the spinoff to take place within the next 12 months. The firm said it will maintain a strong commercial relationship with Worldpay.
• Former Worldpay CEO Charles Drucker has been appointed as strategic advisor to help with the split and will be reinstated as chief executive post-separation.

How we got here: FIS acquired Worldpay for $43 billion in 2019—one of several multibillion-dollar acquisitions that year, including Fiserv’s First Data purchase and Global Payments’ TSYS buy.

• Growing competition from startups, the increasing need for digitalization, and pricing pressures fueled these megadeals.
• At the time, then-CEO Gary Norcross emphasized that FIS needed to scale to compete aggressively in the payments sector.

But those sentiments seemed to have changed: FIS said that the Worldpay spinoff will increase its operational and strategic focuses and let the firm align capital allocation and structure with long-term growth targets and market needs.

Underlying causes: Two factors may have contributed to the Worldpay spinoff.

Investor pressure

• FIS’ board of directors and CEO kicked off an assessment into the firm’s strategy, operations, and business structure last year to optimize FIS’ performance and returns.
• Activist investors D. E. Shaw and Jana Partners prompted the review.

Slower growth

• While FIS’ revenues were mostly consistent in 2022, volume growth slowed considerably from 2021, when payment firms capitalized on the surge in in-person spending following pandemic lockdowns. FIS’ merchant services revenues grew just 1% year over year (YoY) in Q4 2022, versus 19% during the same period in 2021, per its earnings presentation.
• Macroeconomic headwinds like the war in Ukraine and stronger competition from players like Fiserv and Global Payments may have also complicated FIS’ growth. The spinoff will give the firm more flexibility to reallocate funds and invest in other growth initiatives.

The bigger picture: FIS is undergoing significant cost-cutting measures.

• It plans to let go of about 2,600 employees—about 2% of its full-time workforce and 1,000 contractors.
• FIS will also reduce vendor spend and “outsource non-value-added activities,” CEO Stephanie Ferris said in November.
• The Worldpay spinoff could aid FIS’ cost-cutting efforts in the long term while keeping the door open to potential revenue-generating integrations between the two firms.

This article originally appeared in Insider Intelligence's Payments Innovation Briefing—a daily recap of top stories reshaping the payments industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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