First Data Goes Public — May Dial Back Share Price

First Data is coming to market, pricing its initial public offering on Wednesday (Oct. 14) at $16 per share and raising $2.6 billion, roughly speaking — a disappointment to many on Wall Street and likely to the company itself.

[bctt tweet=”First Data’s $16 per share IPO may be a disappointment to Wall Street and the company itself.”]

That’s because $16 a share represents a point beneath the $18 to $20 that each of the shares was widely expected to fetch, according to numerous sources.

Though the payments sector has, in addition to First Data, seen increased determination by other players to come public — most notably, and most recently, Square — it remains to be seen whether the First Data revised pricing represents general muted expectations for the sector or is company-specific. Initial reports as news surfaced over the summer that First Data would seek an IPO initially estimated that the valuation could top $40 billion.

But, First Data, after all, has a heavy debt load. And, as Seeking Alpha noted on Wednesday, the company enjoys almost no discount to peers that are growing relatively faster, such as Vantiv and Heartland Payments Systems. Taken all together, said the site, a $2.6 billion public issue would bring an implied valuation of $15 billion, overshadowed by the still-extant debt load of $18 billion, which translates to debt-fueled interest payments of more than $800 million through the first six months of this year alone — an obligation that may eventually be quite burdensome if the company continues to rack up losses.

As has been widely reported, KKR, among other investors, is bringing the payments company to investors after having taken the firm private in 2007 for a $30 billion price tag that many Wall Street observers have said stood out as one of the last of the big deals that materialized ahead of the financial crisis, the stock market crash and the Great Recession. At the $16 pricing, according to Bloomberg, KKR gets to realize at least some return on investment, at roughly 15 percent, and the private equity firm sold 160 million shares. Proceeds from the IPO will be used to pay down the debt.

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