Speculation about one of the world’s largest payment processors going public in early 2012 had potential investors humming last summer. On March 22, Vantiv Inc. turned eight months of speculation into reality with its initial offering on the New York Stock Exchange, expected to raise $500 million for the Cincinnati-based processor.
Investment analysts last July voiced the positive aspects of investing in a payments-industry company that generally enjoys solid recurring revenue.
Investor enthusiasm played out March 22 with Vantiv stock, under the ticker VNTV, opening at $19 a share. By 2:30 p.m. EDT, shares were selling for $20, up 5%, and Vantiv, regarded one of the largest merchant acquirers in the United States, had sold 15.4 million shares.
It all put Vantiv CEO Charles Drucker in a good mood, though he knows his company faces as many challenges as opportunities in the fast-changing payments industry.
Vantiv, formerly known as Fifth Third Processing Solutions LLC, competes with the likes of Fiserv Inc.; Total System Services Inc., or TSYS; Heartland Payment Systems Inc.; and Global Payments Inc. But it also faces competition from new payments-industry players such as PayPal Inc. and Google Inc. in the mobile spectrum.
Despite that array of competitors, Drucker sees a place for his company no matter which way the merchant-acquiring market turns.
“What I really like about this business is that new technology always comes along, and it helps the entire market,” Drucker tells ISO&Agent Weekly.
Any technology that converts cash or checks into more electronic payments represents a positive step for the entire payments industry, says Drucker, who has been CEO at Vantiv since 2009.
“On the acquiring side, a transaction is a transaction, and anything that moves more transactions is more positive for us,” Drucker suggests.
Vantiv has an advantage because its “single-technology” network, which operates for issuers and large merchants, is easy for clients to connect with, Drucker notes.
Gaston Ceron, an equity analyst with Morningstar Inc., researched the pros and cons of investing in Vantiv in a March 21 pre-IPO report for investors.
“Long-term, the trend still stands for electronic payments to grow, and Vantiv is a fulcrum of that whole process for merchants and banks,” Ceron tells ISO&Agent Weekly. “From that standpoint, they are in a real good place, and the company is in an expansion mode.”
Competition from PayPal and Google represent a key risk for Vantiv, Ceron says. However, no one in the payments industry knows how much of a threat those companies will really pose in the coming years, he suggests.
“The other risk factor for Vantiv would be anything [more] occurring with federal regulations that might somehow depress debit card activity,” Ceron contends.
For now, Vantiv intends to focus on what it considers key growth areas, Drucker notes.
“We plan to expand geographically in the U.S., and I see us becoming an international company in the future,” Drucker says. “We also want to focus more on the e-commerce and health care markets, integrating processing systems into doctors’ offices and clinics.”
Vantiv made strides in the health care market last December in sealing a deal with TransEngen Inc.
The IPO in some ways signals Vantiv’s clean break from Fifth Third as its own company, even though Vantiv separated from Fifth Third in 2009 as a stand-alone company called Fifth Third Processing Solutions.
Vantiv changed its name from Fifth Third Processing last June.
However, Vantiv will continue to rely on its relationship with Fifth Third in processing payments for networks such as Visa Inc. and MasterCard Worldwide in which relationships with banks are needed. Plus, Vantiv relies on Fifth Third referrals and previous client contracts for business.
In addition, an agreement with Discover Financial Services for Vantiv to provide “end-to-end outsourced processing” for its large-merchant client base remains on target for the second quarter of 2012, Drucker says.
Vantiv intends to continue sales through direct channels and ISOs, many of whom have already re-signed contracts, Drucker adds.
“We felt we had executed our plans for sales expansion and product improvements with an eye toward continued growth,” Drucker says of the preparations for an IPO.
“Market windows close and open quickly, and we felt we were ready with the staff and team we have here at Vantiv.”
