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Acquisitions and Dispositions | 3 Months Ended
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Mar. 31, 2020
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. 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. 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.
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 assets and liabilities of First Data have been measured at estimated fair value as of the acquisition date. During the first quarter of 2020, 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 $21 million. The offsetting amounts to the change in goodwill were primarily related to customer relationship intangible assets, noncontrolling interests and deferred income taxes. The Company recorded a measurement period adjustment of $155 million to reduce the fair value of customer relationship intangible assets as a result of refinements to attrition rates. A measurement period adjustment of $122 million was recorded to reduce the fair value of noncontrolling interests based on changes to the fair value of the underlying customer relationship intangible assets and the incorporation of additional facts and circumstances that existed as of the acquisition date. In addition, the Company recorded a measurement period adjustment of $36 million to reduce the fair value of recognized deferred tax liabilities related to changes in the 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, intangible assets, noncontrolling interests, deferred tax liabilities and other contingencies assumed as part of the acquisition. 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 | 1,748 |
Prepaid expenses and other current assets | 1,055 |
Settlement assets | 10,398 |
Property and equipment | 1,175 |
Customer relationships | 13,458 |
Other intangible assets | 2,812 |
Goodwill | 30,528 |
Investments in unconsolidated affiliates | 2,696 |
Other long-term assets | 1,219 |
Total assets acquired | $ | 65,399 |
Liabilities assumed (1) |
Accounts payable and accrued expenses | $ | 1,591 |
Short-term and current maturities of long-term debt (2) | 243 |
Contract liabilities | 74 |
Settlement obligations | 10,398 |
Deferred income taxes | 3,499 |
Long-term contract liabilities | 16 |
Long-term debt and other long-term liabilities (3) | 1,239 |
Total liabilities assumed | $ | 17,060 |
Net assets acquired | $ | 48,339 |
Redeemable noncontrolling interests | 252 |
Noncontrolling interests | 1,612 |
Total purchase price | $ | 46,475 |
(1) | In connection with the acquisition of First Data, the Company acquired two businesses which it intended to sell and subsequently sold 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.
(2) | Includes foreign lines of credit, current portion of finance lease obligations and other financing obligations.
(3) | Includes the receivable securitized loan and the long-term portion of finance lease obligations.
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 | $ | 13,458 |  |  | 15 years
Acquired software and technology | 2,322 |  |  | 7 years
Trade names | 490 |  |  | 9 years
Total | $ | 16,270 |  |  | 14 years
The Company incurred transaction expenses of approximately $82 million for the three months ended March 31, 2019. Approximately $23 million o f these expenses were included in selling, general and administrative expenses and $59 million in debt financing activities within the Company’s consolidated statement of income for the three months ended March 31, 2019. The following unaudited supplemental pro forma combined financial information presents the Company’s results of operations for the three months ended March 31, 2019 as if the acquisition of First Data had occurred on January 1, 2019. 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, 2019. 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) |
Total revenue | $ | 3,809 |
Net loss | (18 | )
Net loss attributable to Fiserv, Inc. | (42 | )
Net loss per share attributable to Fiserv, Inc.: |
Basic | $ | (0.06 | )
Diluted | $ | (0.06 | )
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, 2019 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;
• | an increase in the three months ended March 31, 2019 for one-time costs directly attributable to the acquisition, including an adjustment to recognize a loss in connection with the extinguishment of First Data debt;
• | 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, 2019; and
• | the related income tax effects of the adjustments noted above.
Other Acquisitions On March 2, 2020, the Company acquired MerchantPro Express (“MerchantPro”), an independent sales organization that provides processing services, point-of-sale equipment and merchant cash advances to businesses across the United States. MerchantPro is included within the Acceptance segment and further expands the Company’s merchant services business. On March 18, 2020, the Company acquired Bypass Mobile (“Bypass”), an independent software vendor and innovator in enterprise point-of-sale systems for sports and entertainment venues, food service management providers and national restaurant chains. Bypass is included within the Acceptance segment and further enhances the Company’s omni-commerce capabilities, enabling enterprise businesses to deliver a seamless customer experience that spans physical and digital channels. The Company acquired these businesses for an aggregate purchase price of $132 million, net of $2 million of acquired cash, and including earn-out provisions estimated at a fair value of $37 million (see Note 8). At March 31, 2020, the preliminary purchase price allocations for these acquisitions primarily resulted in software and customer intangible assets totaling approximately $24 million and goodwill of approximately $105 million. The purchase price allocations for these acquisitions are based on preliminary valuations and are subject to final adjustment. The goodwill recognized from these transactions is primarily attributed to synergies and the anticipated value created by selling the Company’s products and services to the acquired businesses’ existing client base. Approximately $70 million of the goodwill is expected to be deductible for tax purposes. The results of operations for these acquired businesses have been included in the accompanying consolidated statement of income from the dates of acquisition. Pro forma information for these acquisitions is not provided because they did not have a material effect on the Company’s consolidated results of operations. Dispositions On February 18, 2020, the Company completed the sale of a 60% controlling interest of its Investment Services business, which is reported within Corporate and Other following the Segment Realignment. The Company received pre-tax proceeds of $584 million, net of related expenses, resulting in a pre-tax gain on the sale of $431 million, with the related tax expense of $113 million recorded through the income tax provision, in the consolidated statement of income. The pre-tax gain included $177 million related to the remeasurement of the Company’s 40% retained interest based upon the enterprise value of the business. The Company’s remaining 40% ownership interest of the Investment Services business is accounted for as an equity method investment, with the Company’s share of net loss reported as loss from investments in unconsolidated affiliates and the related tax benefit reported within the income tax provision in the consolidated statement of income. The Company’s investment in the Investment Services business was $185 million at March 31, 2020 and is reported within other long-term assets in the consolidated balance sheet. The revenues, expenses and cash flows of the Investment Services business after the sale transaction are not included in the Company’s consolidated financial statements. In conjunction with the sale transaction, the Company also entered into transition services agreements to provide, at fair value, various administration, business process outsourcing, technical and data center related services for defined periods to the Investment Services business (see Note 21).

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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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