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Payment processor Vantiv Inc. (VNTV) made trading gains on its first day as a public company Thursday after pricing within its range.
The company's stock opened at $19 a share on the New York Stock Exchange, up nearly 12% from its initial public offering price of $17. It sold 29.4 million shares at the midpoint of its expected $16 to $18 range.
Based in Ohio, Vantiv is a payment processor that allows businesses to accept and process credit, debit and prepaid payments. Vantiv also provides payment services to financial institutions, such as card issuer processing, payment network processing, fraud protection, card production, and prepaid program management. According to the Nilson Report, it is the third largest merchant acquirer and the largest PIN debit acquirer by transaction volume in the U.S.
Vantiv says the businesses that use its processing services are heavily weighted toward non-discretionary spending categories, such as grocery and pharmacy, and includes large national retailers, including nine of the top 25 national retailers by revenue in 2010. It says its financial institution client base is also well diversified and includes over 1,300 firms.
It is planning to increase its small- to mid-sized client base, since smaller merchants and financial institutions tend to outsource all or a majority of their payment processing. It is also developing other payment processing services, including expanding its prepaid card services and fraud management services.
Vantiv plans to expand its sales channels to increase sales to existing and new clients, including adding to its direct sales force. In the future, the company wants to expand internationally through strategic partnerships or acquisitions. The company recently completed three acquisitions, and will continue to seek acquisitions of companies or merchant portfolios, it says in its prospectus.
The company generates revenues based primarily on transaction fees paid by merchants or financial institutions. Its revenue rose 40% to $1.6 billion in 2011, and net income increased 54% to $84.8 million.
Among the risks Vantiv faces is the highly competitive nature of the payment processing business. Its rivals include financial institutions and well-established payment processing companies. On the merchant side, it competes against Bank of America Merchant Services, Chase Paymentech Solutions, U.S. Bancorp's (USB) Elavon Inc. subsidiary, and First Data Corp. On the financial institution side, it competes with Fidelity National Information Services Inc., First Data Corp., Fiserv Inc. (FISV), Total System Services Inc. (TSS) and Visa Debit Processing Service.
Vantiv is also facing new competition emerging from non-traditional sources that offer alternative payment methods, such as PayPal and Google Inc. (GOOG).
In order to provide its transaction processing services, Vantiv is registered through its bank partnerships with Visa Inc. (V), MasterCard Inc. (MA) and other payment networks as service providers for member institutions, so it and many of its clients are subject to card association and payment network rules that get changed from time to time. In some cases, payment networks compete with Vantiv, and Vantiv warns that they can modify and enhance their rules in ways that may provide them with an advantage
Vantiv began life as a business unit of Fifth Third Bank (FITB). In June 2009, Advent International Corp. acquired a majority interest in the bank's payment processing business unit. Fifth Third and Advent continue to own approximately 18.5% and 70% of the company, respectively, post-IPO.
J.P. Morgan Chase & Co. (JPM), Morgan Stanley (MS), Credit Suisse Group (CS), Goldman Sachs Group Inc. (GS) and Deutsche Bank AG (DB, DBK.XE) were the book-running managers on Vantiv's offering.
-By Lynn Cowan; 202-257-2740; email@example.com