Has the $26 billion-valuation LBO -- the largest ever -- of the world's biggest payment processor, First Data Corp., failed? While it's still too soon to render a definitive judgment, signs are not encouraging.
With $22.6 billion of debt, First Data's debt-to-Ebita ratio is 10.5. The payment processing behemoth will not be able to pay off this mountain of debt out of operations.It may have to hive off assets and certainly has to raise equity capital, likely attempting an initial public offering in 2010, market conditions permitting.
First Data's enormously ambitious leveraged buyout was predicated on: (1) a healthy economy and robust secular card payments growth tailwinds; (2) a benign regulatory environment; (3) that the processing mastodon was marbled with unnecessary costs; and (4) that as a private company, with the new management, ministered to by private equity firm Kohlberg Kravis Roberts & Co., cost and competitive synergies could be realized across its portfolio of payment-processing assets.
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