Salvaged from the ruins of Royal Bank of Scotland after the financial crisis, Worldpay had an inauspicious early life.
But the little-known payments processing company buried beneath the rubble of the bank in 2008 was a British diamond in the rough.
Nearly 10 years on, Worldpay, founded by a former policeman before the now state-backed lender RBS acquired it in 2002, has been transformed from an unfashionable, yet steady, utility to a technology powerhouse. It is being snapped up as one of the UK’s most promising fintech stocks for £9.3bn by US rival Vantiv following an agreement struck this week.
The sale caps a journey that has taken Worldpay from a tiny tech start-up, into RBS’s hands, through private equity ownership and back to the FTSE 100 in one of the UK’s biggest post-crisis floats.
The result is a company positioned to capitalise on the explosion of digital payments — as more consumers and businesses shop online and on mobile. Combined with Vantiv, it will be the largest processor in the world by the number of transactions.
Still, it is not quite the outcome Worldpay had planned.
Before last year’s Brexit vote, the company was ready to go on the prowl for acquisitions. Investors say the sudden drop in sterling following the UK referendum last June turned predator into prey.
Worldpay’s independence is a “casualty of Brexit”, says Richard Buxton, chief executive of Old Mutual Global Investors, which has a stake in the UK company. “They were clearly looking to acquire Vantiv before the referendum and collapse of sterling, which scuppered it all.”
Mr Buxton adds that the combination with the US group “makes sense but the terms are not great for Worldpay holders”. The two sides have agreed that Worldpay will have a secondary listing in London, so UK investors can benefit from any future increases in the share price. The new group will retain the Worldpay name and have an international hub in the UK.
But still the deal means Britain loses one of its brightest gems in the fintech sector to Cincinnati-based Vantiv. It joins a slew of other fast-growing UK companies that have been snapped up by foreign buyers this year — chipmaker Arm Holdings was bought by SoftBank and pay-TV broadcaster Sky received a bid from 21st Century Fox.
Worldpay provides the technology for companies such as retailers to accept payments in stores and online. It has experienced inexorable growth, with underlying earnings surging from £270m in 2011 — the year after it was sold by RBS — to £468m in 2016. Worldpay’s share price is up by about 70 per cent since it was listed in London in October 2015.
Vantiv fought off early competition from JPMorgan Chase, which showed interest in Worldpay last month but ruled itself out within an hour of its rival’s initial offer.
JPMorgan’s approach nevertheless reflects the degree of interest and intense competition brewing in the payments space.
Founded by entrepreneur and former policeman Nick Ogden in 1997, Worldpay was inspired by his creation of an online wineshop before the internet took off. Mr Ogden then worked with his bankers to create a broader online shopping site for established UK retailers.
“What we created . . . was a global shopping audience looking at products only priced in pounds — but they didn’t know how much it was worth in their own currency,” Mr Ogden tells the FT. “I suddenly realised e-commerce wouldn’t work unless we presented goods to customers all over the world in a currency that they understand . . . that was the ‘eureka moment’ behind Worldpay.”
Mr Ogden began working with UK bank NatWest to launch Worldpay as a service that enabled companies to accept online payments in local currencies. “The first customer was the Diana Memorial fund,” he says. “I was asked whether we could provide the payments processing for online memorial donations.”
In 2000, RBS took over NatWest in a hostile bid spurred by Fred Goodwin, its then chief executive. RBS bought Worldpay in 2002. But Mr Goodwin’s focus at RBS was on the global expansion of the investment bank, not a payments processing unit seen at the time as an operational necessity rather than an engine of growth.
Under RBS’s ownership Worldpay continued to offer point-of-sale transactions and online payments for corporates, but people close to the company say it lacked focus, investment and skilled staff.
The bank was ordered by the European Commission to sell numerous businesses as a condition of its taxpayer-backed £45.5bn bailout. Worldpay was one.
RBS sold Worldpay — then an “unloved subsidiary”, according to one investor — to private equity companies Advent International and Bain Capital in 2010 for more than £2bn. There have since been questions over whether RBS let the business go for too little.
“Worldpay is a very different business now to the one we sold in 2010 — it has undergone significant restructuring and seen major investment by its new owners and of course financial technology stock has seen huge upturn in valuation,” says one RBS banker. “So for people to say we didn’t get a good deal overlooks the situation at the time and what’s happened over the past seven years.”
One person close to the bank says RBS did not have the investment firepower after the financial crisis to commit to Worldpay. “The business was suffering from a hiring freeze, it could not recruit sales people, especially in the US.”
Robin Marshall, a managing director at Bain, says RBS’s core business “was not actually the creation of a payments company and that’s why when we bought Worldpay it hadn’t been invested in to the level it deserved”.
Under Bain and Advent’s ownership, Worldpay’s growth was turbocharged.
The private equity companies invested more than £1bn, about half of which went on new technology and the rest on acquisitions and staff, doubling the number of employees, including engineers. They recruited turnround specialist Philip Jansen as chief executive. Mr Jansen, who will be co-CEO of the new group along with Vantiv’s Charles Drucker, previously worked at UK food supplier, Brakes, a company also owned at the time by Bain, before it was sold to US company Sysco last year.
“We are able to give managers skin in the game; they are able to have equity in the business,” says James Brocklebank, a managing partner at Advent. Mr Jansen’s stake, which he will roll into the new company, is now worth more than £30m.
Advent and Bain made nine acquisitions, a key one of which was Cardsave. Mr Brocklebank says this provided a salesforce that sold Worldpay’s payment services to companies including British Airways and Asos, significantly spurring the UK unit’s rapid growth.
But it was not all plain-sailing. Worldpay’s technology was intertwined with that of RBS. The bank’s archaic systems were under strain, suffering from glitches that led to payments issues.
“This was the biggest challenge in the deal and it was an extremely risky undertaking. As someone said at the time, Worldpay’s IT was like meatballs and spaghetti within RBS’s technology,” says Mr Brocklebank.
Bain and Advent made the tough decision to completely rebuild Worldpay’s IT system from scratch, a task that had not previously been undertaken at such a scale in Europe.
Challenges remain for Vantiv. Worldpay has still not been completely removed from RBS’s systems. Mr Jansen says he expects the process to take another year.
Competition is mounting, from new fintech firms such as the US Stripe and established behemoths such as JPMorgan.
But investors say Vantiv’s early move is strategically shrewd. As the global digital payments sector expands, a company unearthed in London will be polished in the midwest.