First Data And The IPO 'Rebirth'

| About: First Data (FDC)

Summary

The ups and downs of the IPO.

Focusing on what matters.

Lessons learned – and still being learned.

Last Saturday - October 15, 2016 - was the one-year anniversary of the First Data IPO.

Now, admittedly, calling 2016 a "first year" for First Data is something of a stretch. First Data was first incorporated in 1971, so it is actually 45 years young. And it wasn't even technically First Data's first year as a publicly traded company either. From 1992 to 2007, it traded on the NYSE before being taken private by KKR.

That, First Data CEO Frank Bisignano told me in a wide-ranging chat about the first year of its most recent IPO, is but one of the things that makes First Data a very unusual initial public offering.

"For us, the IPO was a rebirth, not a first birth," he said. "We were a very, very large company that had a lot of public filings already because all of our debt was publicly traded, so a lot of details about us were very public. Our infrastructure to be a public company was pretty darn good. Most other companies coming to the public markets have some funding, for sure, but not our assets, so we were in a very different place as a company. It was just different for us."

And, in fact, "it's just different" could probably be the 2016 mantra for what Bisignano referred to as First Data's "rebirth year." Because, at quick glance, First Data is a very different company than it was just one year ago.

Different culturally. Different financially. And different in the way that First Data talks to its clients about what it does.

My interest in wanting to speak with Frank on the eve of First Data's one-year IPO anniversary was to better understand how that "different First Data" came to be over the course of this last year, how he knew that First Data was ready to march back into the public market spotlight a year and a couple of days ago and his reflections on the first year as a publicly traded company - for the second time.

Here's what he told me.

THE UPS AND DOWNS OF THE IPO

No one reading this will be surprised to learn that Frank Bisignano likes a challenge and likes winning in the face of big ones. What drew him to First Data in the first place, he told me, was the challenge of turning around a company with great clients and a great market position but with lots of areas for improvement. One of the things that he's especially proud of is the fact that First Data, to this day, holds the title of biggest tech IPO so far - raising about $2.56 billion in the public markets. We even joked that his record will likely stay unbroken despite Snap, Inc.'s plans. (It's rumored that they are looking to raise $1.8 billion).

Bisignano is even more proud of the fact that First Data's IPO went forward at a time that so many others pulled their plans to do so. Market volatilities made going to the public markets risky. But Bisignano stuck with the original plan for one simple reason: His customers and his team said they were ready. That was all, he told me, he needed to decide that he was ready, too.

Ready - but still not easy.

Moving from private company to the public markets meant being ready to face the $22.6 billion headwind that fueled investor skepticism over First Data's chances of pulling off a successful IPO. First Data's legacy at that time was as much about being saddled with that massive debt burden as it was being the world's largest merchant services company processing nearly half of the world's payment volume.

"When I first came [to First Data], our interest expense was eating up a lot of our money, and we had very, very little cash," Bisignano reflected.

That reality stuck with investors. First Data opened trading on its first day a little more than 2 percent above its $16 a share threshold, hoping to raise $3.7 billion. At the end of the first day of trading, First Data closed about 1.5 points lower than that, adding $2.56 billion to its bank account - and not the $3.7 billion it had hoped for.

The stock price fluctuated a lot over its first several months of trading, but it was First Data's Q4 2015 results that saw the stock plummet 8 percent to a low of roughly $10 in February. First Data's lofty debt service burden, coupled with disappointing earnings, was the big culprit.

But, Bisignano said, that was then, and this is now - and he pointed to the last six months of First Data's performance as proof that First Data has turned an important corner.

Through refinancing and organically paying down debt, First Data seems to have quelled the concerns of investors, for now. The stock is back up to a little more than $13. Investors seem buoyed by the fact that First Data has a few more options and a lot of breathing room to recalibrate the company's capital structure and prove that it's capable of both servicing its debt and generating free cash flow.

During last quarter's earnings call, Bisignano reported that First Data put $500 million in cash to the bottom line in the first six months of the year.

"We have money that we can invest, so the fact that we are paying down debt organically and increasing earnings by building solutions that our clients love is what has changed our leverage ratios every quarter."

And, from Bisignano's perch, First Data's future.

FOCUSING ON WHAT MATTERS

Bisignano made it clear to me that, although he's happy how First Data's deleveraging story has improved Wall Street's view of First Data over the last six months, he doesn't put much stock in First Data's share price (no pun intended). What means more to him is First Data's clients and the company's ability to create solutions that go beyond simply processing a payment. If First Data can do that, the rest - meaning the stock price - he said, will take care of itself.

"We were the world's largest [payments processing company] when we rang the NYSE bell, and we still are. But this business today requires companies like ours to be a solutions provider," Bisignano reflected. He also acknowledged that, at the time of the IPO, many remained publicly skeptical that First Data could deliver on that requirement, saying that it was too big a leap for First Data to make - or if it could, it wouldn't happen in a time frame that its clients would find acceptable. The unspoken words: Its clients would go elsewhere to get those services.

That, Bisignano said, meant pushing First Data's pedal hard on mobile, global and digital. He believed that, for its clients to remain competitive in a dynamic payments and commerce environment, First Data had to deliver solutions that would deliver a competitive edge for those clients. Delivering that required two things: a team that was invested in and capable of creating innovative solutions and taking them to market and a client partnership mindset better aligned with what clients wanted and needed to transform their business with what First Data was offering.

That, Bisignano told me, in the first instance, meant getting the culture right, something that became a big focus in his first year. The goal was to get everyone in the company to think of First Data "as a meritocracy," which included issuing equity in 2014 that gave everyone in the company a stake in its future. Then, as one big team, sharing the same goals and with the same incentives to achieve them, Bisignano said that he could focus the company on what he believes has become the game-changer for First Data - investing in the innovation that its clients were asking for and that investors would later find compelling.

"We love to partner with our clients; we love to build solutions with them that help them drive mobile and digital. And once we do, we iterate with them on those solutions so that we can continue to deliver the kind of value that helps them grow their business," Bisignano emphasized.

Nowhere, he said, is this more visible than with Clover.

Clover is First Data's answer to serving the small business market that is most often associated with players like Square or the many tablet providers who today bundle payments processing with software and hardware solutions.

It also happens to be one of the hardest markets to serve.

Not only is every merchant services player now focused on small business - making the competitive environment fierce - but as a segment, small businesses are anything but easy to reach and serve. They're among the most heterogeneous, price-sensitive, thinly resourced and fragile segments of business.

But that's where Bisignano told me Clover shines.

First Data created Clover as a "business in a box" solution that does more than process payments. Clover is a platform that helps small businesses run their businesses through a variety of apps and capabilities that come bundled with its sleek hardware. Clover can, for example, help small businesses set up a website to sell online. As a result, he said, there's more of a reason for small businesses to sign on, stay on and remain a viable business.

"We have clear information that small businesses who use Clover do better and are less fragile with Clover than without it," Bisignano told me.

LESSONS LEARNED - AND STILL BEING LEARNED

First Data's first year as a public company has seen the company smooth over a few bumps in the road and turn a few important corners. Yet, Bisignano said, there is a lot more work to be done.

Mobile and global remain at the top of his list of innovations to continue to invest in and develop. Bisignano said that there's clearly a lot of runway to continue to gain share in the small business segment that's a key firm priority. Data - First Data's middle name, we joked - is getting a new lease on life as the firm has introduced a number of new data products aimed at helping retailers of all sizes get their hands on curated and relevant data to help them make better business decisions.

I wondered, though, what advice he might offer firms like Snap, Inc. contemplating the move to becoming a publicly traded company. Not unsurprisingly, Bisignano advised really sweating the small stuff.

"The journey to raise capital in the equity market is an important journey, and the roadshows are critically important. Companies must be ready, be prepared and be thoughtful," he offered.

In other words, make sure your house is in order, make sure you do your homework and make sure that you have a plan that investors will buy for how you'll make money.

Finally, I asked, how has being a public company changed First Data?

And, surprisingly, Bisignano told me that it really hasn't, telling me that running First Data - the public company - is pretty similar to running First Data - the private company - under his command.

Except for one important thing.

"Now, as a public company, the thing I think about every day is how people - all kinds of people - have put their faith in us. That means that it's important for us every day to run our firm in a manner that will make our investors pleased to have made that choice."

But, he quickly emphasized, being "pleased" is something of a relative term that doesn't mean obsessing over the First Data stock price day-to-day. Doing that, he reminded me, would cause him to ignore his most important job: serving clients.

"The stock price is the byproduct of First Data delivering best-in-class solutions and serving our clients. And that's my obsession."

An obsession that any client, investor, partner or team member would find more than acceptable from a CEO who's clearly in it to win it.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.