First Data Corp.'s announcement Wednesday that it is considering selling its card-issuing business has prompted speculation about possible buyers.
The unit might have synergies with several banking technology companies, but two analysts said the sheer size of the Denver processor's cards business could discourage other financial services vendors. The more likely scenario would be a deal with a private equity investor.
Craig A. Peckham, an analyst at Jefferies & Co. Inc., said that a private equity company would find the recurring revenue that comes with First Data's card processing business "most attractive."
He said that stable, recurring revenue was an important factor in another major private equity deal, the August purchase of SunGard Data Systems Inc. for 11.4 billion in cash by a consortium of private equity companies.
Anthony Davis, an analyst at BankAtlantic Bancorp Inc.'s Ryan Beck & Co. Inc., also said that a private equity purchase is the likeliest outcome. He estimated the price tag for the First Data unit at about $3 billion, which would limit the pool of buyers, and said that few big banking companies would be interested in the card processing business because it would force them to seek out their competitors as customers.
Mr. Davis also ruled out First Data's processing rival Total System Services Inc. as a possible buyer, in part because such a pairing would probably face antitrust issues. The combination of the two businesses would give TSYS about 70% of the U.S. card processing market.
Eric Bruner, a spokesman for TSYS, of Columbus, Ga., would not say whether his company has any interest in such a deal.
Mr. Davis said that another possible buyer is Fidelity National Financial Inc., which is in the process of merging its technology unit, Fidelity National Information Services Inc., with the card transaction processor Certegy Inc.
Mr. Davis said Fidelity National "has larger ambitions for all types of processing."
Daniel Murphy, Fidelity National Financial's senior vice president of finance and investor relations, said that his company and Certegy both have strong customer bases in the community bank and credit union space, he said. "There are a lot of synergies."
Mr. Murphy would not say whether Fidelity National Financial has any interest in First Data's card processing business, which tends to have larger banking customers.
Another possible acquirer could be Metavante Corp., which offers debit card transaction processing and credit card services, such as embossing and mailing cards.
First Data hinted during its third-quarter earnings conference call last month that it might sell the output services component of its card-issuing business, which embosses cards and mails statements to customers.
Mr. Davis said this is similar to Metavante's cards operations, and that Metavante "probably would want to look at" the unit. He also said that given "the paucity of buyers," First Data may have to sell off the card-issuing unit in pieces.
Chip Swearngan, a spokesman for Metavante, would not discuss his company's acquisition strategy.
Mr. Peckham said that First Data might decide not to sell of the card processing operation. Even though it is struggling, he said it complements its merchant processing business, and the "the interplay between the two is important in penetrating new markets" abroad.
