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Company: Fiserv Inc. (FISV)
Business: Fiserv provides payment and financial services technology worldwide. The company operates through Acceptance, Fintech, and Payments segments. The Acceptance segment provides point-of-sale merchant acquiring and digital commerce services; mobile payment services; security and fraud protection products; Carat, an omnichannel commerce solution; and Clover POS, a cloud-based point-of-sale solution. This segment distributes through various channels, including direct sales teams, strategic partnerships with agent sales forces, independent software vendors, financial institutions, and other strategic partners. The Fintech segment offers customer deposit and loan accounts, as well as manages an institution’s general ledger and central information files. This segment also provides digital banking, financial and risk management, cash management, professional services and consulting, item processing and source capture, and other products and services. The Payments segment offers card transactions, such as debit, credit, and prepaid card processing and services; security and fraud protection products; card production; print services; and various network services, as well as non-card digital payment software and services, including bill payment, account-to-account transfers, person-to-person payments, and electronic billing products. It serves businesses, banks, credit unions, other financial institutions, merchants, and corporate clients.
Stock Market Value: $78.1B ($117.94 per share)
Percentage Ownership: 1.60%
Average Cost: n/a
Activist Commentary: ValueAct has been a premiere governance-oriented investor for 20 years and since 2017, has been helmed by Mason Morfit as chief investment officer. ValueAct has broadened the activist playbook a little under Morfit, but it continues to be a premier governance-oriented investor with its partners on the boards of approximately half of the firm’s core portfolio positions.
ValueAct Capital has taken a $1.2 billion (1.60%) position in Fiserv Inc. (FISV).
This investment in Fiserv is right in ValueAct’s sweet spot – a technology company with good management, products and relationships that are somewhat misunderstood by the market. Some of ValueAct’s most profitable investments were in other misunderstood technology businesses like Microsoft, Seagate and Adobe. For example, both Microsoft and Seagate were viewed as PC companies when they were really Cloud companies. The market now views Fiserv as an old legacy technology company, when it is really a new world company.
Even as a legacy technology business, Fiserv is a good company, growing at approximately 8% per year. But Fiserv is transforming itself well before being disrupted by smaller competitors, and it has the relationships to scale their technology with their deeply integrated clients. A perfect example of this is Clover, the company’s smart POS terminal. Clover came out a few years after Square, but Clover’s business is already bigger with the amount of payments it is processing and growing faster than Square. Clover could be valued today at $30 billion to $45 billion including debt on a standalone basis and could be worth $185 billion by 2024.
But Clover is just one opportunity to transform. The key here is that management is embracing this transformation strategy and could find other organic and strategic opportunities to further it. If the company fully embraces its evolution, it should be able to achieve an annual growth rate of at least 15%. This transformation can increase the company’s lifetime value of its products by 60%.
In order to get there, there are three main areas for the company to focus on. First, investing to drive this growth rate up. Second, growing through acquiring and integrating a few other businesses that are like Clover. And third, simplifying its strategy and how it communicates with the market. The market needs to better understand the company and its opportunities.
Right now, FISV trades at a discount to the average S&P 500 company, even though its growth rate is higher than the average S&P 500 company, without giving credit for additional growth from Clover. ValueAct can be very helpful in assisting management in achieving this transformation, just like they did at Microsoft, Adobe and Seagate. As history has shown, they will be at least an engaged and supportive shareholder and if need be, will provide value as a director to create value for shareholders. They will certainly continue to engage with the company on a supportive basis as they get to know each other better and if they do end up taking a board seat it will likely be on an amicable basis to support management.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.