XML 75 R11.htm IDEA: XBRL DOCUMENT

Acquisitions

9 Months Ended

Sep. 30, 2019

Acquisition of First Data

On July 29, 2019, the Company completed the acquisition of First Data, a global leader in commerce-enabling technology and solutions for merchants, financial institutions and card issuers, by acquiring 100% of the First Data stock that was issued and outstanding as of the date of acquisition. The acquisition increases the Company’s footprint as a global payments and financial technology provider by expanding the portfolio of services provided to financial institutions, corporate and merchant clients, and consumers.

As a result of the acquisition, First Data stockholders received 286 million shares of Fiserv, Inc.’s common stock, at an exchange ratio of 0.303 Fiserv, Inc. shares for each share of First Data common stock, with cash paid in lieu of fractional shares. The Company also converted approximately 15 million outstanding First Data equity awards into corresponding equity awards relating to Fiserv, Inc. common stock pursuant to an exchange ratio in the merger agreement as described in further detail within Note 7. In addition, concurrent with the closing of the acquisition, the Company made a cash payment of approximately $16.4 billion to repay existing First Data debt. The Company funded the transaction-related expenses and the repayment of First Data debt through a combination of available cash on-hand and proceeds from debt issuances as discussed in Note 14.

The total purchase price paid for First Data is as follows:



(In millions)
Fair value of stock exchanged for Fiserv, Inc. shares ⁽¹⁾	$	29,293
Repayment of First Data debt	16,414
Fair value of vested portion of First Data stock awards exchanged for Fiserv, Inc. awards⁽²⁾	768
Total purchase price	$	46,475


⁽¹⁾	The fair value of the 286 million shares of the Company’s common stock issued as of the acquisition date was determined based on a per share price of $102.30, which was the closing price of the Company’s common stock on July 26, 2019, the last trading day before the acquisition closed the morning of July 29, 2019. This includes a nominal amount of cash paid in lieu of fractional shares.


⁽²⁾	Represents the portion of the fair value of the replacement awards related to services provided prior to the acquisition. The remaining portion of the fair value is associated with future service and will be recognized as expense over the future service period. See Note 7 for additional information.

The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with ASC 805, Business Combinations (“ASC 805”). The purchase price was allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill, none of which is expected to be deductible for tax purposes. Goodwill is primarily

attributed to synergies from future expected economic benefits, including enhanced revenue growth from expanded capabilities and geographic presence as well as substantial cost savings from duplicative overhead, streamlined operations and enhanced operational efficiency.

The September 30, 2019 consolidated balance sheet includes the assets and liabilities of First Data, which have been measured at fair value as of the acquisition date. The preliminary allocation of purchase price recorded for First Data was as follows:



(In millions)
Assets acquired ⁽¹⁾
Cash and cash equivalents	$	311
Trade accounts receivable	1,754
Prepaid expenses and other current assets	1,072
Settlement assets	10,397
Property and equipment	1,233
Customer relationships	13,637
Other intangible assets	2,391
Goodwill	29,955
Investments in unconsolidated affiliates	2,637
Other long-term assets	1,154
Total assets acquired	$	64,541

Liabilities assumed ⁽¹⁾
Accounts payable and accrued expenses	$	1,515
Short-term and current maturities of long-term debt ⁽²⁾	237
Contract liabilities	74
Settlement obligations	10,397
Deferred income taxes	3,388
Long-term contract liabilities	16
Long-term debt and other long-term liabilities ⁽³⁾	1,232
Total liabilities assumed	$	16,859
Net assets acquired	$	47,682
Redeemable noncontrolling interest	88
Noncontrolling interests	1,119
Total purchase price	$	46,475


⁽¹⁾	In connection with the acquisition of First Data, the Company acquired two businesses which it intended to sell. Therefore, such businesses were classified as held for sale and were included within prepaid expenses and other current assets and accounts payable and accrued expenses in the above preliminary allocation of purchase price (see Note 5).


⁽²⁾	Includes foreign lines of credit, current portion of finance lease obligations and other financing obligations (see Note 14).


⁽³⁾	Includes the receivable securitized loan and the long-term portion of finance lease obligations (see Note 14).

The above fair values of assets acquired and liabilities assumed are preliminary and are based on the information that was available as of the reporting date. The fair values of the assets acquired and liabilities assumed were preliminarily determined using the income and cost approaches. In many cases, the determination of the fair values required estimates about discount rates, future expected cash flows and other future events that are judgmental and subject to change. The fair value measurements were primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement of the fair value hierarchy as defined in ASC 820, Fair Value Measurements (“ASC 820”). Intangible assets consisting of customer relationships, technology, and trade names were valued using the multi-period excess earnings method (“MEEM”), or the relief from royalty (“RFR”) method, both are forms of the income approach. A cost and market approach was applied, as appropriate, for property and equipment, including land.


•	Customer relationship intangible assets were valued using the MEEM method. The significant assumptions used include the estimated annual net cash flows (including appropriate revenue and profit attributable to the asset,

retention rate, applicable tax rate, and contributory asset charges, among other factors), the discount rate, reflecting the risks inherent in the future cash flow stream, an assessment of the asset’s life cycle, and the tax amortization benefit, among other factors.

•

Technology and trade name intangible assets were valued using the RFR method. The significant assumptions used include the estimated annual net cash flows (including appropriate revenue attributable to the asset, applicable tax rate, royalty rate, and other factors such as technology related obsolescence rates), the discount rate, reflecting the risks inherent in the future cash flow stream, and the tax amortization benefit, among other factors.


•	The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for property and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation.


•	The market approach, which estimates value by leveraging comparable land sale data/listings and qualitatively comparing them to the in-scope properties, was used to value the land.


•	An income approach was applied to derive fair value for both consolidated investments with a noncontrolling interest and equity method investments accounted for under the equity method of accounting. The significant assumptions used include the estimated annual cash flows, the discount rate, the long-term growth rate and operating margin, among other factors.

The Company believes that the information provides a reasonable basis for estimating the fair values of the acquired assets and assumed liabilities, but the potential for measurement period adjustments exists based on the Company’s continuing review of matters related to the acquisition. The Company expects to complete the purchase price allocation as soon as practicable, but no later than one year from the acquisition date.

The amounts, based on preliminary valuations and subject to final adjustment, allocated to intangible assets are as follows:



(In millions)	Gross Carrying Amount⁽¹⁾		Weighted-Average Useful Life
Customer relationships	$	13,637	15 years
Acquired software and technology	1,914		7 years
Trade names	477		9 years
Total	$	16,028	14 years


⁽¹⁾	In connection with the acquisition of First Data, the Company acquired two businesses which it intends to sell. As such, gross carrying amounts exclude amounts held for sale (see Note 5).

Since the acquisition date, the results of operations for First Data of $1.6 billion of revenue and $396 million of operating income for the three and nine months ended September 30, 2019, respectively, have been included within the accompanying consolidated statements of income (see Note 19).

The Company incurred transaction expenses of approximately $45 million and $172 million for the three and nine months ended September 30, 2019. Approximately $45 million and $74 million of these expenses were included in selling, general and administrative expenses within the Company’s consolidated statements of income for the three and nine months ended September 30, 2019, respectively, and $98 million in debt financing activities for the nine months ended September 30, 2019.

The following unaudited supplemental pro forma combined financial information presents the Company’s results of operations for the three and nine months ended September 30, 2019 and 2018 as if the acquisition of First Data had occurred on January 1, 2018. The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the Company’s operating results that may have actually occurred had the acquisition of First Data been completed on January 1, 2018. In addition, the unaudited pro forma financial information does not give effect to any anticipated cost savings, operating efficiencies or other synergies that may be associated with the acquisition, or any estimated costs that have been or will be incurred by the Company to integrate the assets and operations of First Data.



	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions, except for per share data)	2019		2018		2019		2018
Total revenue	$	3,935	$	3,772	$	11,730	$	11,343
Net income	306		434		939		851
Net income attributable to Fiserv, Inc.	284		405		847		766
Net income per share attributable to Fiserv, Inc.:
Basic	0.42		0.59		1.25		1.10
Diluted	0.41		0.57		1.22		1.08

The unaudited pro forma financial information reflects pro forma adjustments to present the combined pro forma results of operations as if the acquisition had occurred on January 1, 2018 to give effect to certain events the Company believes to be directly attributable to the acquisition. These pro forma adjustments primarily include:


•	a net increase in amortization expense that would have been recognized due to acquired intangible assets;


•	an adjustment to interest expense to reflect (i) the additional borrowings of the Company in conjunction with the acquisition and (ii) the repayment of First Data’s historical debt in conjunction with the acquisition;


•	a reduction in expenses for the three and nine months ended September 30, 2019 and a corresponding increase in the nine months ended September 30, 2018 for acquisition-related transaction costs and other one-time costs directly attributable to the acquisition;


•	a reduction in operating revenues due to the elimination of deferred revenues assigned no value at the acquisition date;


•	an adjustment to stock compensation expense to reflect the cost of the replacement awards as if they had been issued on January 1, 2018; and


•	the related income tax effects of the adjustments noted above.

Acquisition of Elan

On October 31, 2018, the Company acquired the debit card processing, ATM Managed Services, and MoneyPass® surcharge-free network of Elan Financial Services, a unit of U.S. Bancorp (“Elan”), for approximately $659 million. Such purchase price includes an initial cash payment of $691 million, less the receipt of post-closing working capital adjustments of $57 million in 2019, plus contingent consideration related to earn-out provisions estimated at a fair value of $12 million and future payments under a transition services agreement estimated to be in excess of fair value of $13 million. This acquisition, included within the Payments segment, deepens the Company’s presence in debit card processing, broadens its client reach and scale, and provides new solutions to enhance the value proposition for its existing debit solution clients.

During the third quarter of 2019, the Company identified and recorded measurement period adjustments to the preliminary purchase price allocation, which were the result of additional analysis performed and information identified based on facts and circumstances that existed as of the acquisition date. The measurement period adjustments resulted in a decrease in goodwill of $24 million with an offset to intangible assets and prepaid expenses and other current assets. The following allocation of purchase price for Elan was finalized in the third quarter of 2019:



(In millions)
Trade accounts receivable	$	20
Prepaid expenses and other current assets	98
Property and equipment	9
Intangible assets	373
Goodwill	214
Accounts payable and other current liabilities	(55		)
Total purchase price	$	659

Goodwill, deductible for tax purposes, is primarily attributed to synergies, including the migration of Elan’s clients to the Company’s debit platform, and the anticipated value created by selling the Company’s products and services outside of card payments to Elan’s existing client base. The values allocated to intangible assets are as follows:



(In millions)	Gross Carrying Amount		Weighted-Average Useful Life
Customer relationships	$	370	15 years
Trade name	3		8 years
Total	$	373	15 years

In conjunction with the acquisition, the Company entered into a transition services agreement for the provision of certain processing, network, administrative and managed services for a period of two years. The results of operations for Elan consisting of $41 million and $132 million of revenue and $(8) million and $6 million of operating (loss) income, including $17 million and $29 million of acquired intangible asset amortization, for the three and nine months ended September 30, 2019, respectively, have been included within the accompanying consolidated statements of income.