Fidelity (FIS) Likely to Sell Its Capital-Markets Business
Fidelity (FIS) is in discussion to divest its capital-markets business to Symphony for a probable transaction value of $2 billion.
Fidelity National Information Services FIS is reportedly in talks with Symphony Technology Group to vend its capital-markets business. According to people familiar with the matter, the deal could be valued at nearly $2 billion.
Per a person knowledgeable about the matter, the technology-centered private equity firm Symphony may announce the purchase of the assets as soon as next week. The assets will likely include Fidelity’s treasury management, alternative-trading and algorithm-based trading platforms.
Founded in 2002, Symphony invests in data analytics, software and software-enabled technology services companies.
Jacksonville, FL-based Fidelity provides banking and payments technology solutions, processing services and information-based services to the financial services industry. Fidelity prioritizes long-term growth via its ongoing investments in technology and innovation across the high-growth markets to expand its total addressable market.
Given that the deal is being valued at around $2 billion, the sale is likely to boost Fidelity’s liquidity profile, offering it opportunities to focus on its core operations. In fact, as of Sep 30, 2021, Fidelity had total debt of $19.8 billion. The debt level has been volatile over the past few quarters. Its cash and cash equivalents of $1.4 billion as of the same date have declined from around $2 billion since the end of 2020. The deal is also likely to enable Fidelity to reduce its foreign exchange volatility exposure with respect to its capital-markets business.
The capital market business, which is focused on serving global financial services clients with a broad spectrum of buy- and sell-side solutions, generates significant recurring revenues for Fidelity. For the three months ended Sep 30, its capital markets’ recurring revenues were majorly driven by sound sales, boosting outsourced solutions and services.
Moreover, the segment’s adjusted EBITDA margin rose primarily on higher-margin revenue mix and continued cost management by Fidelity. Thus, sale of the segment might induce a loss of revenues and unfavorably impact Fidelity’s financials in the near term.
Shares of Fidelity have lost 28.8% over the past six months compared with the 26.8% fall recorded by its industry.
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Currently, the stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Firms Boosting Inorganic Growth
Several companies from the finance sector are making consolidation efforts to counter the low-interest rate environment and higher costs of investments in technology.
Recently, Citizens Financial Group, Inc. CFG completed its previously announced merger with JMP Group LLC. Citizens Financial announced the all-cash deal in September to augment its capital-market capabilities.
The buyout is expected to foster growth, diversify Citizens Financial's capital-market platform and provide a grander scale in the key verticals of healthcare, technology, financials and real estate.
Similarly, last month, in order to further diversify its deposit-gathering capabilities and revenue mix, Raymond James RJF announced a cash-cum-stock deal to acquire TriState Capital Holdings, Inc. TSC for $1.1 billion.
The transaction is still subject to approvals from the regulators and TriState Capital shareholders. Paul Reilly, chairman and CEO, Raymond James, said, “Importantly, this acquisition further illustrates our commitment to utilize excess capital through organic and inorganic growth that we expect to drive strong returns for shareholders over the long term.”
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Fidelity National Information Services, Inc. (FIS): Free Stock Analysis Report
Raymond James Financial, Inc. (RJF): Free Stock Analysis Report
Citizens Financial Group, Inc. (CFG): Free Stock Analysis Report
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