 Okay. Welcome back to the deal room. So, Stephen, how does it feel like I've seen you in a while? How are you? I'm all right. Thank you. I was on a holiday down in France trying to cycle my bike, somewhat unsuccessfully, unfortunately. But I'm back on Terra firma in the UK, sat down, not going near a bike for a few weeks. Let's just say that. No, it's not very banking vibes taking holidays like this during the summer. It's acceptable if you're wearing lycra and analysing your stats on Strava meticulously and sharing it with everyone else. That's quite bankery, so I think I can get away with it. All right. Well, look, we've definitely got a big deal to talk about. Actually, it's one of the largest corporate carve-outs in history. Just that small deal. So, that's fidelity, national information services being agreed to sell a majority stake in merchant payments on well pay. So, we're going to talk about that, deconstruct it. I know you've got some great insights to explain the overview of the deal, the structure, syndicated debt, like great stuff. But before we dive in, I thought, well, let's just talk about something that's quite big and quite relevant for I know a lot of work you've been doing with our analysts, doing some modelling around Microsoft and Activision. So, what's the latest news on that front? Yeah, it's really interesting because, as you said, with the summer analysts, we've just completed the second cohort's 24-hour M&A sprint where they've had to model its vision using a variety of different valuation techniques, where the $68.7 billion represents a good deal for both parties, and we were doing a number of polls this afternoon with another group talking about the rationale behind the deal and things like that. But obviously, on the pod we've spoken about this deal getting blocked by the CMA, the Competition Markets Authority in the UK, sounding a bit of a death knell in the deal, quite frankly, because if it doesn't get passed in the UK, it's unlikely that it's going to go ahead for a number of different reasons. And then the FTC blocking it, or the FTC saying, look, let's go to court. Let's have this out. It's a little bit like getting in a boxing ring. We're going to take this thing to court, and we're going to let an independent judge pass their judgment. And so there's been a lot of headwinds to this deal that got announced in January 2022 and needs to close by the 18th of July of this year. What's that, next Tuesday? The 18th of July next year in order to avoid Microsoft having to pay a $3 billion termination fee. So the stakes are pretty high. And what happened yesterday, which is really, really interesting, after four or five days sitting in the courts, Judge ruled that this acquisition does not present a significant threat to competitive markets in the gaming industry. So a bit of a blow to the FTC. They can appeal. History suggests they probably won't appeal just because they haven't when court rulings have been established previously. The UK came out within half an hour of the ruling and said, we're going to put our objection on hold. Doesn't mean that they don't have an objection. Doesn't mean that they stopped there. They green lighted it. But they certainly opened the door a jar to Microsoft coming back to the CMA and slightly sweetening the deal from their perspective, giving them a bit of a carrot to get this thing through by the 18th of July. Otherwise, all sorts of things could happen. Extension, termination fee, they could just complete the deal, by the way, which is the which is the baldest move. They can complete the deal, acknowledge that there are still some regulatory things going on and hope and kind of play and play the kind of numbers game and hope that they can clear it retrospectively. But that is that is high stakes, because there's huge fines that stayed there if that if that doesn't happen. So again, this is this is why we like M&A. This is why we like markets. This is why we like deals. It is updating, you know, almost on an hour by hour basis. And we're getting new information. So it's it's it's fun for us. How much like influence can you have within like a banking role where it's like you're dealing with regulators and you're dealing with government officials? Like, surely, like, I'd love to be a flaw on the wall. Like you said, there's what three billion on the hook for like the fee, if this all goes the wrong way. There's just too much money on the line for lots of backroom deals not being cut to make sure this goes goes the right way, surely, of this magnitude when it's an M&A deal of this size. Yeah, if you think about the payday that the M&A bank is a kind of book, you know, it's not kind of a done deal, but they're probably projecting out their bonus quite healthily. They've been out in the South of France cycling for the past week. They bought their new Lycra, exactly. So they obviously they're their incentives for the deal to go through, and they will push this as hard as they can. There are certain sector teams and deal teams in certain countries that are likely to have closer ties with particular regulators or particularly if you're a pharmaceuticals banker in APAC, you might well have really good relationships with the equivalent of the FDA in order to understand how the process works. I'm sure that there's no golf course deals going on or all kind of secret meetings or anything like that. But yeah, there's a lot of money on the table and there's an incentive to push this thing through. And I'm sure that a lot of M&A bankers are kind of ringing their hands hoping that everything goes through by the AT. Yeah, you know who are drafting in terms of you've talked about this before about the different elements of this M&A team and the different specialisms. You often see that as much as people in the public will complain about the pay that MPs get or politicians, for example, particularly if they're on the front bench, people who have influenced in the political scene, they often when they leave that world go and work at a big bank, typically a US investment bank. So would these people have influence and be involved in these deals? And could they push the right buttons in terms of they're not the silver bullet? But is there any of that type of mix that goes on where you bring in people of that magnitude in that arena to help? Yeah, you can bring in people of that magnitude from a political perspective, the in-house lobbyist effectively, the Nick Clegg of Metta to come in and do the dirty work on behalf of the company. You can also bring in industry grandees and influential people that have been involved in the gaming industry to have their say. If you have expertise in a particular domain that has regulatory scrutiny, I think that you're probably in good favor and you'll probably be able to charge a nice hourly rate to the investment bank. And obviously, there are these big services, kind of pay for information, pay for expertise services that hedge funds and investment banks get involved in all the time. So I'm sure that there'll be a few calls being made over the next couple of days if they haven't already been made. Yeah, I think Boris just had another child, so he's going to need to top up that bank account balance. The horrible mental image forming in my mind there. So let's talk about this FIS and world pay deal. So what's the top level to kick us off then? So just what is the deal and who are these companies to start with? Bit of backstory. Sure. Okay, so Fidelity National Information Services, I'm going to call it FIS. So FIS is a relatively old school provider of payments and financial infrastructure across banks, across clearinghouses, across asset managers. Just think about it as the kind of nuts and bolts that sit behind a lot of transactions in the finance space. It's been around for a while. It's relatively well established. It's got a market capitalization of $35 billion. It handles, it works with 95% of the world's leading banks and $40 trillion is processed through its management technology, so relatively big. And it bought world pay, a leading provider of payment technology and solutions on the merchant side, so on the kind of smaller retail side. So it bought world pay back in 2019 for $43 billion. Now, back in 2019, Fidelity National Information Services, FIS was worth almost $100 billion in market cap. So yes, this was a huge transaction, but FIS was also a lot bigger. And there was this kind of, this rampant desire across these different payment processes and payments companies to consolidate. The view was generally, all right, if we're going to survive, this needs to be like an oligopoly. There needs to be three or four big players with massive economies of scale. So FIS and world pay joined together back in 2019, fast forward just well, three and a half years. And FIS has been looking over the last couple of months to offload world pay to a buyer, to an acquirer for $18.5 billion. So $43 billion 2019, $18.5 billion for 2023. So if you want a headline, that is probably your headline, FIS taking a huge haircut on this acquisition. Yeah, I think I saw, was it ant group? There was a similar thing as a discount. And it was like 78% or something like that, something crazy. And this is a function of, you know, this is a function of ill-conceived, possibly mistimed, possibly maybe narcissistic or hubristic acquisitions that just didn't actually make sense. And, you know, around the time of doing a deal back in 2019, there were a lot of reasons why the management of fidelity information services would want to do this deal. You know, their rivals were doing big deals. Everyone internally was telling them to do a big deal. The investors were telling them to do a deal. Bankers were telling them to do a deal. So, you know, everything was going to stack. And at the time, you know, everyone was pretty, pretty happy with this deal. Like it was seen as a reasonable thing. But obviously, in the preceding years from 2019 to 2023, this thing has gone downhill and downhill pretty fast. So if you were the lead, so not the actual bank, but the MD that's leading this transaction, is your reputation and reputation damage so severe that that's it? You're out now in terms of your career? Or how does it work when there's been such a missed timing? And it's not totally your fault. As you said, there's many other players here pushing for a deal to happen for different reasons. Can you survive that if you're the lead person on that project? Yeah, it's a tricky one. I think you can see it from two angles and possibly depending on who was the agitator within the deal. Because to some extent, and we spoken about this before on the pod, to some extent, M&A execution bankers are hide guns, right? You know, they are there to do the deal. They are the masters of getting deals done and getting a price that at the time was acceptable to all parties. And then if you're being a little bit you're being a little bit cynical, they, you know, there's a temptation to see them washing their hands of it and walking away and doing the next deal. Now, if it had been a deal that was very, very heavily pushed by a particular investment bank or a particular sector team, and really, really kind of, yeah, really pushed to the extent that they were the ones that were leading the company, then yes, there is probably a reputational issue there. But if this is, you know, Fidelity Information Services going to a bank and saying, look, I need to do a deal here, I know that the pressures on me helped me out. And maybe the MD provided a list of risks and potential pitfalls around the deal and did their, you know, covering their own back. Therefore, the reputational risk in that case is probably a little bit less. But yeah, it's not, I mean, it's a big payday and memories may well be a little bit short when it comes to execution. But there probably is going to be some reputational impact from this, you know, this pretty significant haircut. Okay, so tell me a little bit more about the composition of the deal in itself. And, you know, I hear this word carve outs quite a lot in this space, but I don't actually fully understand what they're referring to when they say that. So as you mentioned at the top end, this is one of the largest corporate carve outs of all time, which actually quite surprised me. This is, you know, a carve out is where a large corporate halves out a piece, a slice of its business and sells it to an independent buyer. Now, again, in finance, it would be great if everything was super, super clear and simple, you know, so the buyer of world pay is a private equity firm, Chicago based private equity firm or GTCR. And on the face of it, you might think, okay, $18.5 billion deal. All right, well, you know, GTCR have bought world pay for $18.5 billion. You know, that's the carve out. FIS have no involvement, but obviously things are a little bit stickier than that. So the $18.5 billion deal, what is actually happening is GTCR is acquiring 55% of world pay. So a controlling stake with FIS owning 45%. So they still got pretty significant skin in the game, although their portion is now worth about $5 billion. So not, you know, not nearly as significant as it was. So in addition, so GTCR have put in a bunch of equity, but in addition, they have funded the deal. And by the way, GTCR have committed up to $1.25 billion to fund inorganic, i.e. mergers and acquisitions, to bolster world pays growth and, you know, and take advantage of the fact that it's now independent from the bigger beast that it was owned by. But as with all of these private equity leverage transactions, it wasn't just equity that GTCR, you know, they didn't just pay for it outright, they funded it with a combination of their own equity, raised out of a couple of their own funds, they actually went to some of their LPs in the funds and got some co-investments, so to build that equity ticket. But they also raised, in addition to the $5 billion of equity investment, they raised $8.4 billion of syndicated debt in order to complete this transaction. Now, this is a big, big amount, this is a huge ticket, basically the biggest of the year, probably the biggest in Ceylon in terms of a leveraged debt deal. That was $13 billion for Twitter. So $8.4 billion of syndicated debt has been provided in order to consummate and support this transaction. This syndicated debt, when I said syndicated, I mean there is a club, there was a syndicate of different banks, this syndicated debt of $8.4 billion includes banks such as Goldman Sachs, JP Morgan, who are the kind of lead sponsors in this city group, Wells, UBS, Deutsche Bank, and it's a really interesting one because up until the last, well, up until this moment, basically syndicated leveraged debt markets have been closed. Banks have been sitting out, not wanting to support leveraged transactions. And this is the first one, maybe since the beginning of the year. So there's probably quite a lot to unpack here in terms of the deal dynamics. But I think the most interesting part of this deal from a wider markets perspective is what is going on with debt. Because if we can understand what is going on with debt, then we have a bit of a better picture as to the forward-looking prospects of private equity and private credit and things like that. Is there, when you have the syndicated group like that, like you were just looking at Goldman, JP, they're leading, but then you've got Wells, City, UBS, Deutsche. You've got different structured banks, different geographical banks. Is that purposeful? Because in a way that that spreads and diversifies that base of the syndicated group? Yeah, so the advantages of having a broad syndicate, I'm a deal size of this nature. So what these banks are going to do, and this is a huge historical, it's been a huge source of revenue for the investment banks. I think I read that in recent years, it's been up to a third of investment banking revenue doing these basically underwrites. So you've got all of these banks and they take responsibility for different chunks of the 8.4 billion. Now, some of those chunks will be Euro-denominated. And I think Goldman Sachs is leading on the Euro piece. Some of those chunks will be Dollar-denominated. I think JP is leading on that. There is a mixture of term loan and revolving credit facilities. So there's different debt types. What these banks are going to need to do, and they're actually going to try and do it by September, which shows a little bit of confidence in the market, is basically sell it off. They sell it off to institutional investors that want to get involved in some high-yield debt, because this is going to be high-yield, i.e., underinvestment grade. They sell it off in form of going to the bond market, issuing high-yield bonds. So the more banks you have, the more roller-decks since you have, and the more ability you have to sell down. If I was Goldman Sachs, I wouldn't want to be sitting on an all 8.4 billion operating out of my London team, because I just don't have the network of private debts of institutional investors getting this out in the bond market. I just don't have the network to do it. So this is why you form that syndicate to spread that risk. Okay, so let's move on. If you could explain to me then this Chicago-based firm GTCR, what's in it for them? Why are they taking this move? Yeah, it's an interesting one. GTCR have been pretty involved in the payment space over the last few years. There are 35 billion-dollar assets under management series of funds institution. This is their biggest ever deal, which is quite interesting. And their deal rationale is, look, this company, World Pay, has actually had quite a few different ownerships and ownership structures. It's going to be passed around a little bit. This organization is going to be better as an independent, smaller, nimbler, leaner entity. And we believe that we can provide our expertise, provide our network, provide our ability to do bolt-on acquisitions. Remember that inorganic growth fund. We believe that we can pick this thing up for $18.5 billion. By the way, actually, just as an aside, it's $17.5 billion is the acquisition price with up to $1 billion of earn-out. So basically, performance-related. So if World Pay hits certain revenue or profitability targets, then more payment will go to the seller. I always think about it. In football terms, often you see a player getting bought for $50 million. But if they do really well, that can go up to $70 million. So it's the kind of post-deal structure. But anyway, so this private equity firm, they're buying World Pay at a valuation of just under 10 times 2023 earnings before interest tax depreciation, mortisation. That seems, that feels like a reasonable valuation for a pretty well-established, relatively profitable, relatively high barriers to entry business that feels like it probably needs a bit of love and used to be valued at $43 billion. So it feels like sensible rationale and also quite good timing because there's a lot of headwinds here in terms of getting that financing away, pretty punchy to go out and try and raise $8.4 billion of syndicated finance off the back of basically six months of a completely dead market. So they've done a pretty good job here and they probably picked up an asset slightly cheaper than they would have done if the private credit markets and the syndicated leverage loan markets were flying. So we'll wait and see, but it doesn't seem like a bad one to me. So your expectation here in terms of the ability then for this to go through, is there any other similar transactions that have happened of this nature or anything we can use as a reference point to kind of understand the probability of success? Yeah, it's an interesting one. I think there's probably a couple of equivalents. I think the first one you can look to the space, the industry, and you can actually see, I just had a look at a chart earlier on today that looked at all of the different kind of global payments players, Pfizer, Jack Henry, FIS, global payments, etc. and the best performer in terms of the share price from 2019 to 2023 was the smallest one was Jack Henry. So actually going back to this kind of 2019 botched deal rationale, the expectation was economies of scale will win, but the reality was the smaller you were and the more nimble you were, the more you saw your profits grow and subsequently your share price. So as a kind of industry equivalent, that's not a bad, there's probably something that the private equity firms looked at when they were looking at this deal. On a maybe a slightly wider, broader perspective, it tends to be a really attractive hunting ground for private equity firms to go fishing for unloved parts of larger organizations because there's not a lot of synergies to being unloved within a large organization. It's not, you know, you're not going to get a premium on that. And quite frankly, the bigger organization doesn't necessarily want that, you know, that kind of growth on the side of its company. And it's an opportunity to potentially buy on the cheap. And in fact, when the deal got announced last week or the kind of rumblings of the deal got announced last week, the share price of FIS popped six or seven percent. So, you know, FIS didn't really want it. It's a decent company. This happens quite a lot in the world of private equity. So, again, the rationale all seems quite kind of linear and straightforward. Cool. Well, look, I think we'll wrap it up there. I know we were planning on having a slightly shorter episode, but just don't think we've quite fulfilled that remit further. There's a lot we've covered there and there's a lot of explanations of fairly complicated stuff, certainly if you're new to a lot of these concepts. So, what I encourage everyone to do is on Spotify, there is a Q&A option that should be visible for everyone. If you're listening to this on Spotify, that is, as your podcast platform, you literally just hit the button and you could send the question. And so if there's anything Steven's covered that you'd want to know more on, what I can do is then I'll get an alert and then I'll get Steven to jump on Spotify and he can field any questions. We also post this on stuff like LinkedIn. So, if you don't follow Amplify Me, please do. We share content all the time, not just podcasts, lots of other interesting things. And you can also just drop comments when we post about the new episodes coming out. And we can also field them from there as well. So, yeah. Thanks very much, Steven, as always. And heads up to everyone. It's the big banks kicking off earning season Friday. And so, we are going to jump on. It's going to be a three-way. It could be messy. It's going to be triple heaven. It's going to be me, Steven and Piers. And we're going to talk about those bank earnings fresh off the press on Friday afternoon for that markets-based episode. But going to pull Steven in to get his point of view as well, given that we've got the likes. I think it's JP Morgan, BlackRock. They're all coming out on that day. So, until then, Steven, take care. Thanks, Al.