The $43 billion combination of FIS and Worldpay could trigger a wave of M&A. Here are the deals that could be next. (FIS, WP)

Gary Norcross

Fidelity National Information Services, or FIS, is acquiring Worldpay in a deal valued at $43 billion, the companies announced Monday.
The deal is similar to Fiserv's acquisition of First Data in January, as it involves a financial-technology company (FIS) buying a payment processor (Worldpay).
Traditional players are looking to consolidate power and expand their offerings to fight off competition from newcomers such as Square.
Analysts suggested that Jack Henry & Associates, a direct competitor of FIS and Fiserv, would logically be the next company to look to make a deal in the space.

Like middle-schoolers at their first dance, financial-technology companies and payment processors are quickly pairing off in hopes of not being left alone in a space that's rapidly evolving.

Fidelity National Information Services and Worldpay on Monday became the second duo to take the plunge, announcing a deal valued at $43 billion. FIS and Worldpay were preceded by rivals Fiserv and First Data, which announced a $22 billion deal in January.

Gary Norcross, the chairman, president, and CEO of FIS, told Business Insider in an interview that customers were more interested in dealing with large, wide-reaching companies during periods of such rapid evolution.

"We are in a time of unprecedented pace of change, and in order to meet that unprecedented pace of change, you really do need global scale," Norcross said. "Our customers see a lot of disruptors coming in the industry, and they want to partner with someone that is large enough that can out-innovate or innovate on a scale that is dramatically different than some of the startups."

Wall Street analysts have largely viewed the latest acquisition as a natural progression.

"If you look at it, FIS is one of the biggest competitors to Fiserv. Worldpay is one of the biggest competitors to First Data," said Larry Berlin, a senior vice president who specializes in research at the venture-capital firm First Analysis. "If the first one made sense, then the second one makes sense. And there is always a chance that another one makes sense."

When asked whether Fiserv's purchase of First Data was motivation to make the deal, Norcross said FIS had for years considered buying Worldpay.

An executive at a credit-card company who declined to be named compared the deals in payment processing to what has recently occurred in media, where traditional powers such as 21st Century Fox and Disney and AT&T and Time Warner are seeking to compete with newer streaming services such as Netflix and Amazon Prime Video.

The executive said the same thing was occurring in payment processing, where Square, led by Jack Dorsey, has picked up market share over the past decade.

"It is generally tied to the fact that people need to cut costs, they need to take action, and things are changing rapidly," the executive said. "So big companies tend to come together in those kinds of times."

Most analysts who studied the FIS-Worldpay deal were positive or neutral, categorizing it as a strategic move following the Fiserv-First Data deal that gives the companies scale. A note from SunTrust Robinson Humphrey raised issue with the risk exposure that FIS would get to big-box retail chains like Target or Walmart through buying a payment processor like Worldpay that deals with them.

As far as what company might be next, some analysts said they viewed Jack Henry & Associates as the most likely candidate. A direct competitor of FIS and Fiserv, Jack Henry might also feel the need to strike a deal, Arvind Ramnani, an equity research analyst for KeyBanc Capital Markets, told Business Insider.

"They may be the next to go," he said. "I think there is probably increased pressure for them to get combined with somebody else."

Another analyst suggested that the London tech giant Finastra would also be interested in combining. On the payments-processing side, the analyst said, two large independent players stand out: Total System Services, and Global Payments.

However, Simon Paris, Finastra's CEO, made a statement Monday suggesting the company had a different view than Fiserv or FIS on the benefits of acquiring a payments processor.

“Today’s mega deals in fintech and banking confuse the need for scale with the need for innovation and collaboration across the ecosystem," Paris said. "Consumers and financial service providers want differentiated products delivered digitally and securely.”

Ramnani suggested that smaller companies, such as Q2, a digital-banking solutions provider, might be appealing to companies like FIS and Fiserv as they look to build out their offerings.

"Now that these guys are building scale, they might go acquire some more specialized, niche capabilities," Ramnani said.

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