Royal Bank of Scotland Group PLC on Friday agreed to sell a majority stake in its lucrative processing business, RBS WorldPay, to two private-equity firms for more than $3 billion.
Advent International Corp. and Bain Capital LLC will acquire equal stakes in the business totaling 80.01%. The Edinburgh bank will maintain a 19.99% minority stake in the unit.
The future of WorldPay has been in question for many months after RBS agreed late last year to sell off certain assets, including the processing unit, as part of the conditions of the multibillion government bailout it received during the financial crisis. (Last week the bank agreed to sell more than 300 branches to the U.K. division of Banco Santander of Spain as part of its efforts to slim down.)
Both Advent and Bain have had their eye on WorldPay for several years, long before the mandate to sell the business. In 2004, the companies approached RBS separately about buying WorldPay, but no deal was ever reached.
The two Boston firms decided to team up earlier this year to compete in the formal auction process for the unit. They beat out at least 30 other bidders.
James Brocklebank, a managing director of Advent in London, attributed the success to their expertise in the payments and technology arenas.
The deal "fits right within the heart of the subset of financial services that we're interested in," Brocklebank said Friday in an interview.
Established in 1989, WorldPay is the fourth-largest merchant acquirer worldwide. Last year, the business processed a total of 6.8 billion transactions, totaling $388 billion. It generated an operating profit of around $398 million in 2009.
"It's an extraordinary franchise," Brocklebank said. "It's a very, very high-quality business and one which we think there is a lot we can do given our knowledge in the space."
Specifically, Advent and Bain see an opportunity to expand WorldPay's e-commerce business. "It has a strong business already, but there are some ways we can grow that further," Brocklebank said. "And then there's also the option longer term for global expansion."
Kurt Strawhecker, managing partner of Strawhecker Group, a management consulting firm for the payments industry in Omaha, said focusing on e-commerce is a good way to drive business.
"It becomes much more of a cross-border opportunity for growth," he said. "It's a much broader customer base for your retailers."
Brocklebank said the firms plan to make a significant investment in both people and technology, but would not give an exact dollar amount.
WorldPay, which is headquartered in London, has about 2,500 employees worldwide.
Advent has made several deals in the payments industry over the past decade, including purchasing a 51% stake in Fifth Third Bancorp's merchant processing unit, Fifth Third Processing Solutions LLC, in July of last year.
Strawhecker said he wouldn't be surprised to see Advent fuse Fifth Third's and RBS' processing units at some point.
"The combination of those two certainly consolidates an awful lot of power and an awful lot of volume," he said. "Both of these two companies have their own processing platforms. To a certain extent it's duplicate."
Brocklebank said there are no plans to combine the two businesses, but he stressed that the expertise of the Fifth Third team certainly helped in the RBS deal.
Bain, meanwhile, has made investments in several financial services and technology companies, including software provider SunGard and online brokerage TD Ameritrade Holding Corp.
The deal is expected to close before the end of the year.
Separately Friday, RBS reported net income of $410 million for the second quarter, compared with a loss of about $224 million in the same period a year earlier.
The bank attributed the improved results to rising net interest margin in its retail and commercial banking unit, which helped offset a decline in revenue in its banking and markets segment.
