Archive for the ‘Warburg Pincus’ Category

Blackstone, THL Bid More Than $15 Billion for Fidelity National Information Services, Reminiscent of KKR’s First Data $29B Buyout

Wednesday, May 12th, 2010

Ever since the First Data buyout by KKR, the BPO industry has been a target for large cap private equity funds across the United States.  The First Data deal was a $29 billion deal, and at the time, the company was largest publicly traded American electronic transaction processing company.  Fiserve has an enterprise value of over $13 billion, and about $750 million in EBITDA.  This gives an EV/EBITDA multiple of 17.0-18.0x, even higher the multiple paid for First Data.

Silver Lake and Warburg Pincus also recently bought IDC, Interactive Data Corp., seeing revenue growth potential in the need for market transparency across financial institutions.  IDC provides reference data, markets pricing and trading infrastructure services to customers, including mutual funds, asset managers and banks.  The IDC deal, a carve out from Pearson valued at $3.4 billion, would have been the largest deal this year.

According to Reuters, Fidelity National Information Services, Inc. (FIS) is a global provider of banking and payments technology solutions, processing services and information-based services. It offer financial institution core processing, card issuer and transaction processing services, including the NYCE Network, a national electronic funds transfer (EFT) network. As of December 31, 2009, FIS had more than 300 solutions serving over 14,000 financial institutions and business customers in over 100 countries spanning segments of the financial services industry. Additionally, the Company provide services to numerous retailers, through the check processing and guarantee services. The Company operates in four business segments: Financial Solutions Group (FSG), Payment Solutions Group (PSG), International Solutions Group (ISG), and Corporate and other. On October 1, 2009, FIS completed the acquisition of Metavante Technologies, Inc. (Metavante).

According to Mr. Miller of Bloomberg, ” Blackstone Group LP, Thomas H. Lee Partners LP and TPG Capital are in talks to pay more than $15 billion including debt for Fidelity National Information Services Inc., said a person with knowledge of the matter, a deal that would value the company at about $32 a share.

Fidelity National Information may reach an agreement with the buyout group as soon as May 16 if talks don’t collapse, this person said, speaking on condition of anonymity because the discussions are private. Marcia Danzeisen, a spokeswoman for Fidelity National, didn’t return a call after regular business hours yesterday.

A $15 billion deal would be about three times as big as the largest leveraged buyout since the credit markets crumbled in July 2007, showing how private-equity firms are again putting capital to work after more than a two-year drought in transactions. LBO funds worldwide have about $500 billion of unspent committed capital, according to researcher Preqin Ltd.

Private-equity firms announced about $24 billion of company takeovers so far this year, compared with $5.7 billion during the same period in 2009.

For Fidelity National Information, a Jacksonville, Florida- based payment-processing company, a deal in the $32 a share range would represent more than a 20 percent premium to the $26 closing stock price on May 5, the last day before the Wall Street Journal reported the company was in buyout talks.

Other private-equity firms have recently held talks about joining the group bidding for Fidelity National Information, said two people with knowledge of the matter. With banks preparing about $10 billion in debt financing, the private- equity group would have to put up more than $5 billion, one of the people said.

Financing Group

Bank of America Corp., Barclays Plc, Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG and JPMorgan Chase & Co. are among the banks that have been working on financing the takeover, said other people with knowledge of the matter.

Credit-market turmoil in 2007 led banks to pull back on leveraged loans used to finance buyouts. Since July of that year, the largest LBO was that of IMS Health Inc., acquired in February for about $5 billion including debt.

Fidelity National Information had about $2.9 billion of net debt and noncontrolling interest as of March 31. With about 377 million shares outstanding as of April 30, a deal at $32 a share would value the company’s stock at $12.1 billion.

Thomas H. Lee, also known as THL Partners, already owns about 4.4 percent of Fidelity National, according to data compiled by Bloomberg. Private-equity firm Warburg Pincus is the company’s largest shareholder, with about 11 percent.

Fidelity National Information processes payments and issues cards for more than 14,000 institutions globally. The company had profit of $105.9 million in 2009 on revenue of $3.77 billion.

Spokesmen for Blackstone, THL, and TPG declined to comment or didn’t immediately respond to calls seeking comment.”

Pandit Getting Ready to IPO Sandy Weill’s Primerica

Tuesday, March 30th, 2010

Years after Sandy Weill built Citigroup, Vikram Pandit has been working day and night to divest all ancillary businesses in order to raise capital and pay back the U.S. government for one of the largest bailouts in history.  To date, Citigroup has already sold its Japanese brokerage, its commodities trading unit, and credit card assets.  The most recent divestiture/IPO  for Citi is its  insurance division, Primerica, the insurance company that Sandy Weill used to build Citigroup into the powerhouse it was in 2005/2006.  The IPO reflects improvements in the market.  There are 4 IPOs planned for this week. Primerica will be selling for a sharp discount of 7x PE compared to other insurers, which trade at about 9x P/E.  Warburg Pincus will be purchasing about 30% of the IPO with warrants to purchase more shares in the future.  The division has 100,000 representatives selling financial services to households with $30,000 to $100,000 in annual income.  It earned $495 million in 2009, almost 3x as much in 2008.  Primerica will trade under the symbol “PRI.”

According to Michael Tsang & Craig Crudell of Bloomberg, “Primerica Inc., the insurance business that Sanford I. “Sandy” Weill used to build Citigroup Inc., is selling shares in an initial public offering at a discount to its competitors.

Primerica plans to raise $252 million tomorrow, a filing with the Securities and Exchange Commission and Bloomberg data showed. At the middle of its price range, the Duluth, Georgia- based distributor of consumer-finance products from term-life insurance to mutual funds would be valued at 6.74 times earnings after accounting for its planned reorganization. That’s 29 percent less than the median for U.S. life and health-insurance providers, data compiled by Bloomberg show.

Citigroup Chief Executive Officer Vikram Pandit is dismantling the company Weill built spending about $50 billion on Travelers Corp., Salomon Inc. and Citicorp during the 1990s to offer everything from insurance to stock broking and branch banking. The sale comes after the Standard & Poor’s 500 Index’s rally to an 18-month high spurred a rebound in the IPO market.

“The Primerica deal reflects a shift from the financial supermarket model, where instead of being good at a lot of things, a company like Citigroup ended up being mediocre at everything,” said James Dailey, who oversees $140 million as chief investment officer at TEAM Financial Asset Management LLC in Harrisburg, Pennsylvania. “Primerica could fetch a reasonable price. It’s been around a long time, its brand is established.”

Primerica is one of four U.S. companies scheduled to sell shares through initial offerings this week.

IPO Rebound

All five IPOs since March 15 have priced within or above their forecast range as the S&P 500 extended a rebound from its 2010 low on Feb. 8 to 11 percent. The previous 14 deals since the start of the year had been cut by 24 percent on average, data compiled by Bloomberg show.

Carlyle Group’s Windsor, Connecticut-based SS&C Technologies Holdings Inc., which sells trading and investment management software to the financial industry, and Meru Networks Inc. of Sunnyvale, California, which makes Wi-Fi networking equipment, are scheduled to price their IPOs today. Carlyle, the Washington-based buyout firm that oversees $89 billion, won’t sell SS&C shares in the $161 million offering.

Tengion Inc., the East Norriton, Pennsylvania-based company trying to grow replacement organs and tissues, is also set to hold its IPO this week, according to Bloomberg data.

Primerica, which has 100,000 representatives selling financial services to households with $30,000 to $100,000 in annual income, earned $495 million in 2009, an almost threefold increase from a year earlier.

Relative Value

Net income rebounded after declining 72 percent in 2008, when Primerica wrote down some of its goodwill, or the amount paid above the net asset value in an acquisition.

As part of its reorganization, Primerica will transfer 80 percent to 90 percent of the “risk and rewards” from the life insurance policies that it sold and distribute $622 million in assets to Citigroup before the IPO, according to the filing. That includes a $454 million one-time dividend to Citigroup.

At the middle of its $12 to $14 price range, the company is valued at 6.74 times its 2009 per-share income of $1.93, after taking into account a decrease in revenue and profit that would have taken place if the reorganization occurred on Jan. 1, 2009, according to its filing and data compiled by Bloomberg.

That’s less than the median 9.52 times price-earnings ratio for 23 publicly-traded U.S. life and health-insurance providers, Bloomberg data show.

Prudential, Ameriprise

Prudential Financial Inc. of Newark, New Jersey, the second-largest life insurer, and Ameriprise Financial Inc., the Minneapolis-based financial planning and services firm, command higher valuations, data compiled by Bloomberg show. Primerica lists the two companies among its biggest competitors.

Buyers of Primerica’s IPO will own 24 percent of the insurance firm after the offering.

They will also be investing alongside New York-based Warburg Pincus LLC, which oversees $30 billion. The private- equity firm agreed to buy 17.2 million shares, or a 23 percent stake, in a private sale at the IPO midpoint price, and warrants to purchase 4.3 million shares at a 20 percent premium. Warburg’s stake may increase to 33 percent if the firm exercises its right to buy additional shares from Citigroup.

“It’s a ‘fire sale’ by Citi,” Francis Gaskins, president of IPOdesktop.com in Marina del Rey, California, said in an e- mail. Also, “the IPO investor can get in on the same terms as Warburg. There appears little, if any, risk in this IPO at $13.”

Credit Markets

All proceeds will go to New York-based Citigroup, which is serving as the lead underwriter for the sale. Primerica is part of Citi Holdings, the collection of businesses that Citigroup’s Pandit said he would sell, wind down or restructure.

Pandit is dismantling Weill’s empire after loans and investments tied to the U.S. subprime mortgage market led to $47.6 billion in losses since the last quarter of 2007. Citigroup took a taxpayer-funded bailout after the credit markets froze, Lehman Brothers Holdings Inc. collapsed and Bear Stearns Cos. and Merrill Lynch & Co. were forced to sell themselves. All three companies were based in New York.

Weill used Primerica to build Citigroup through a series of acquisitions. In 1992, Primerica bought a 27 percent stake in Travelers, then took over the company a year later for $3.3 billion, keeping Travelers’ name and umbrella logo.

The company acquired Salomon in 1997 and in 1998 merged with Citicorp in a $37.4 billion deal to create Citigroup.

“This provides an important message that Citi is prepared to shed assets which clearly do not fit the current strategy, even if they have well-known brands,” said Richard Staite, a London-based analyst who covers financial institutions at Atlantic Equities LLP. “It’s a high-profile sale.””

According to Reuters, “Few other financial services companies cater to Primerica’s niche– lower-middle-class and middle-class families. And the offering’s valuation is relatively low compared to other life insurance companies.

Private equity firm Warburg Pincus will buy up to a third of the company, which is a vote of confidence in the business, analysts said.

“Warburg Pincus has put this thing together and they expect to make money. If people buy at the IPO price they’ll be buying right along with Warburg’s price,” said IPOdesktop.com President Francis Gaskins said on Friday.

There are definitely risks in buying Primerica shares. Primerica will not keep any of the proceeds from the offering, so the funds will not bolster the insurer.

Citi, which is leading the underwriters, is taking the IPO proceeds, and has taken substantial funds out of the business through dividends in recent years– nearly $1 billion since 2007. The bank will take another $622 million in dividends before the completion of the IPO, according to its prospectus. Those are funds that Primerica will not be able to invest in its growth.

“When there is a spinoff generally the parent extracts its pound of flesh, which is certainly the case here,” said Linda Killian, a portfolio manager with Connecticut-based Renaissance Capital.

But Primerica can still grow at a healthy clip, Killian said.

“The company is a very sales-oriented company that focuses on the really middle income America that doesn’t get a whole lot of financial services help from some of the larger companies that tend to focus on higher net worth individuals,” Killian said.

Most of the risk — and profit — from life insurance policies that Primerica has sold in recent years will be ceded to Citigroup, but Killian estimates that Primerica could replenish its book in as short a period as four to five years.

Primerica posted net income of about $495 million and revenue of $2.2 billion in 2009.

The group the firm serves is underinsured and needs to boost its investments, especially coming out of the financial crisis, said Clark Troy, a senior analyst at Aite Group.

The shock from the crisis has revealed to consumers that they might not be as well-prepared for retirement and other major milestones as they ought to be, Troy said. Middle class consumers may find Primerica’s pitch persuasive, he added.

“Its a financial product that can be priced attractively and give (the consumer) a lot of comfort,” Troy said.

After the IPO Citi will own 32 to 46 percent of the stock and private equity investor Warburg Pincus LLC [WP.UL] will own 23 to 33 percent of the stock.

In a separate, private deal Warburg Pincus has agreed to buy about 17.2 million shares, and warrants to buy another 4.3 million shares at 120 percent of the IPO price, assuming Citigroup meets certain conditions. Warburg also has the right to buy up to another $100 million worth of shares at the IPO price.

Citi, which accepted $45 billion worth of U.S. government bailout funds, has not made a secret about wanting to divest itself entirely of Primerica. But that is because Primerica is not part of its main banking business, and does not mean the unit is a bad business

If Primerica PRI.N prices at the midpoint of the expected range it will have a price to book value of 0.7. By comparison Ameriprise Financial Inc (AMP.N) and Prudential Financial Inc (PRU.N) are over 1, said IPOdesktop.com’s Gaskins.”