LONDON — Royal Bank of Scotland Group PLC said Friday that it is selling 80% of its Global Merchant Services payments-processing division to Advent International Corp. and Bain Capital LLC for up to £1.9 billion (about $3 billion).
The whole unit is valued at £2 billion ($3.2 billion). The £1.9 billion includes £200 million ($318 million) if the returns realized by the two private equity firms exceed "certain thresholds," RBS said in a statement, adding that the deal is expected to close in the fourth quarter.
The bank will book a gain of about £850 million ($1.35 billion) after goodwill, separation and transaction costs.
RBS was one of five banks providing debt for the deal — the others were Goldman Sachs, Barclays PLC, Morgan Stanley and UBS AG. The amount of acquisition debt wasn't disclosed, but it was shared equally between the banks.
The unit is being sold by the 83%-government owned bank as part of a disposal program forced on it after being bailed out by the state. It hired UBS to run the auction earlier this year, alongside the sale of 318 U.K. branches, which it sealed Wednesday with Spain's Banco Santander SA.
Global Merchant Services' biggest asset is RBS Worldpay, which processes credit-card payments in 40 different countries.
The whole unit employs about 2,560 people, with more than half based in the U.K.
The unit attracted almost 30 bidders in its initial stages, especially private equity firms, which like a stable cash stream that they could use to pay the interest on loans taken out to finance buyouts.
RBS now only has its insurance business to sell under EU requirements, something it isn't likely to do much before the December 2013 deadline given. The disposal could be via an initial public offering.
The bank is also working on reducing its balance sheet by running off investments and loans.
Private equity firms have been investing in companies in the support services sector for over a decade, attracted by firms that demonstrate robust contracts and repeat business. However, many have recently ramped up their sector teams to take advantage of the raft of financial services assets coming onto the block as banks worldwide sell off non-core assets to bolster balance sheets.
Advent, for one, has boosted its financial services firepower with the appointment of several new operating partners over the last six months or so. Most recently it hired David Yates, former president of First Data International, one of the largest global payment processing businesses. The appointment was made as the buyout firm moved forward in the Worldpay auction and hired Credit Suisse Group to sell its financial services support company Sophis.
Bain owns U.S. Fleetcor, which provides prepaid fleet cards to commercial customers worldwide.
Other buyout firms such as Permira and CVC Capital Partners have also boosted their financial services teams to target the sector.