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Acquisitions and Dispositions | 12 Months Ended
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Dec. 31, 2019
Business Combinations [Abstract] |
Acquisitions and Dispositions | Acquisitions and Dispositions 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 common stock of Fiserv, Inc., at an exchange ratio of 0.303 shares of Fiserv, Inc. for each share of First Data common stock, with cash paid in lieu of fractional shares. The Company also converted 15 million outstanding First Data equity awards into corresponding equity awards relating to common stock of Fiserv, Inc. in accordance with the exchange ratio as described in further detail within Note 16. In addition, concurrent with the closing of the acquisition, the Company made a cash payment of $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 12. The total purchase price paid for First Data is as follows:
(In millions) |
Fair value of stock exchanged for shares of Fiserv, Inc. (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 16 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 December 31, 2019 consolidated balance sheet includes the assets and liabilities of First Data, which have been measured at estimated fair value as of the acquisition date. During the fourth 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. These measurement period adjustments resulted in an increase to goodwill of $552 million. The offsetting amounts to the change in goodwill were primarily related to intangible assets, noncontrolling interests and deferred income taxes. The Company recorded a measurement period adjustment of $396 million to the fair value of intangible assets as a result of refinements to estimated future cash flows, royalty rates, technology related obsolescence and attrition rates. A measurement period adjustment of $776 million was recorded to the fair value of noncontrolling interests as a result of updates to the Company’s discounted cash flow analysis and the incorporation of additional facts and circumstances that existed as of the acquisition date. The Company recorded a measurement period adjustment of $147 million to the fair value of recognized deferred tax liabilities as a result of adjustments to the estimated fair value of assets acquired. Such measurement period adjustments did not have a material impact on the consolidated statement of income. The allocation of the purchase price shown below remains preliminary and subject to further adjustment, pending additional refinement and final completion of valuations, including but not limited to valuations of property and equipment, customer relationships and other intangible assets, noncontrolling interests and deferred tax liabilities. Adjustments to the valuation of assets acquired and liabilities assumed will result in a corresponding adjustment to goodwill. The updated preliminary allocation of purchase price recorded for First Data was as follows:
(In millions) |
Assets acquired (1) |
Cash and cash equivalents | $ | 310 |
Trade accounts receivable | 1,747 |
Prepaid expenses and other current assets | 1,046 |
Settlement assets | 10,398 |
Property and equipment | 1,181 |
Customer relationships | 13,613 |
Other intangible assets | 2,811 |
Goodwill | 30,507 |
Investments in unconsolidated affiliates | 2,699 |
Other long-term assets | 1,228 |
Total assets acquired | $ | 65,540 |
Liabilities assumed (1) |
Accounts payable and accrued expenses | $ | 1,576 |
Short-term and current maturities of long-term debt (2) | 243 |
Contract liabilities | 74 |
Settlement obligations | 10,398 |
Deferred income taxes | 3,535 |
Long-term contract liabilities | 16 |
Long-term debt and other long-term liabilities (3) | 1,240 |
Total liabilities assumed | $ | 17,082 |
Net assets acquired | $ | 48,458 |
Redeemable noncontrolling interests | 252 |
Noncontrolling interests | 1,731 |
Total purchase price | $ | 46,475 |
(1) | In connection with the acquisition of First Data, the Company acquired two businesses, which it intended to and subsequently did sell in October 2019. 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 12).
(3) | Includes the receivable securitized loan and the long-term portion of finance lease obligations (see Note 12).
The preliminary estimated fair values of the assets acquired and liabilities assumed were determined using the income and cost approaches. In many cases, the determination of the fair values required estimates about discount rates, growth and attrition 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. 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 additional 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 |  | Weighted-Average Useful Life
Customer relationships | $ | 13,613 |  |  | 15 years
Acquired software and technology | 2,321 |  |  | 7 years
Trade names | 490 |  |  | 9 years
Total | $ | 16,424 |  |  | 14 years
Since the acquisition date, the results of operations for First Data of $4.1 billion of revenue and $1.0 billion of operating income have been included within the accompanying consolidated statement of income for the year ended December 31, 2019 (see Note 21). The Company incurred transaction expenses of approximately $175 million for the year ended December 31, 2019. Approximately $77 million of these expenses were included in selling, general and administrative expenses and $98 million were included in debt financing activities within the Company’s consolidated statement of income for the year ended December 31, 2019. The following unaudited supplemental pro forma combined financial information presents the Company’s results of operations for the years ended December 31, 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.
(In millions, except for per share data) | 2019 |  | 2018
Total revenue | $ | 15,775 |  |  | $ | 15,284 |
Net income | 1,520 |  |  | 1,125 |
Net income attributable to Fiserv, Inc. | 1,457 |  |  | 1,040 |
Net income per share attributable to Fiserv, Inc.: |  |  |
Basic | $ | 2.14 |  |  | $ | 1.50 |
Diluted | $ | 2.10 |  |  | $ | 1.47 |
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 year ended December 31, 2019 and a corresponding increase in the year ended December 31, 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 post-closing working capital adjustments of $57 million, 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 $176 million and $29 million of revenue and $8 million and $6 million of operating income, including $37 million and $4 million of acquired intangible asset amortization, for the years ended December 31, 2019 and 2018, respectively, have been included within the accompanying consolidated statements of income. Other Acquisitions On January 17, 2017, the Company completed its acquisition of Online Banking Solutions, Inc. (“OBS”), a provider of cash management and digital business banking solutions that complement and enrich the Company’s existing solutions. On July 31, 2017, the Company acquired the assets of PCLender, LLC (“PCLender”), a leader in internet-based mortgage software and mortgage lending technology solutions. The OBS and PCLender acquisitions are included in the Financial segment as their products are integrated across a number of the Company’s account processing solutions and enable the Company’s bank and credit union clients to better serve their commercial and mortgage customers. On August 18, 2017, the Company acquired Dovetail Group Limited (“Dovetail”), a leading provider of bank payments and liquidity management solutions. On September 1, 2017, the Company completed its acquisition of Monitise plc (“Monitise”), a provider of digital solutions that enables innovative digital banking experiences for leading financial institutions worldwide. The Dovetail and Monitise acquisitions are included in the Payments segment and further enable the Company to help financial institutions around the world transform their payments infrastructure and to expand its digital leadership, respectively. The Company acquired these four businesses for an aggregate purchase price of $384 million, net of $33 million of acquired cash, along with earn-out provisions estimated at a fair value of $15 million (see Note 10). The purchase price allocations for these acquisitions resulted in acquired software and technology and customer related intangible assets totaling $163 million and goodwill of $217 million. The other net assets of $19 million include $50 million of assets held for sale and approximately $20 million of deferred tax liabilities. The purchase price allocations were finalized for the OBS and PCLender acquisitions in 2017 and for the Dovetail and Monitise acquisitions in the first quarter of 2018, and did not materially change from the preliminary allocations. The goodwill from these acquisitions is primarily attributed to synergies and the anticipated value created by selling the products and services that these businesses provide into the Company’s existing client base. Approximately $70 million of the goodwill is deductible for tax purposes. The values allocated to intangible assets were as follows:
(In millions) | Gross Carrying Amount |  | Weighted-Average Useful Life
Customer relationships | $ | 92 |  |  | 15 years
Acquired software and technology | 71 |  |  | 7 years
Total | $ | 163 |  |  | 12 years
Dispositions On December 4, 2019, the Company entered into a definitive agreement to sell a 60% controlling interest of its Investment Services business, which is reported within the Payments segment. The Company completed the sale of the 60% interest of the Investment Services business on February 18, 2020 for gross proceeds of $591 million, resulting in an estimated pre-tax gain, including the remeasurement of the Company’s 40% retained interest, of approximately $430 million during the first quarter of 2020. Accordingly, the assets and liabilities of the Investment Services business were classified as held for sale in the Company’s consolidated balance sheet at December 31, 2019. The corresponding assets of $360 million, consisting primarily of goodwill, intangible assets, and trade accounts receivable, are presented within prepaid expenses and other current assets and the corresponding liabilities of $43 million, consisting primarily of accrued expenses and deferred income tax liabilities, are presented within accounts payable and accrued expenses in the Company’s consolidated balance sheet at December 31, 2019. The Company will account for its 40% retained interest of the Investment Services business as an equity method investment. On May 11, 2017, the Company sold its Australian item processing business, which was reported within the Financial segment, for approximately $17 million. The Company recognized a gain on the sale of $10 million, with the related tax expense of $5 million recorded through the income tax provision, in the consolidated statements of income.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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