IPO Look: Vantiv

Based in Cincinnati, Ohio, Vantiv,Inc. (proposed VNTV) scheduled a $500 million IPO with a market capitalization of $3.6 billion at a price range mid-point of $17 for Thursday, March 22, 2012.

VNTV is one of six IPOs scheduled for this week. See our IPO calendar Nine more scheduled for the week of March 26.

SUMMARY
Vantiv Holding is a leading, integrated payment processor differentiated by a single, proprietary technology platform.

VNTV is the public vehicle for Vantiv Holding.Vantiv Holding originated as a division of Fifth Third Bank Bancorp (FITB).FITB has $117 billion in assets as of December 31, 2012 and a market capitalization of $13 billion. In FITM’s annual report as of December 31, 2012, FITB’s investment in Vantiv Holding is valued at $576 million, (page 113) which at the price range mid-point of $17 is 2 ½ times the value of $576 million carried FITM’s December 31, 2011 books.

VALUATION
At the price range mid-point of $17 VNTV has the same price-to-sales ratio as Fiserve (FISV) and Global Payments (GPN) of 2.2.VNTV has a slight P/E premium of 28 relative to Heartland Payment Systems (HPY) 25.

Comparing sequential revenue changes in the last four quarters, only VNTV has an unbroken record of revenue increases compared to FISV, GPN and HPY.

CONCLUSION
At 28 times earnings the slight premium relative to HPY seems reasonable, based on VNTV’s sequential quarterly revenue progression compared with HPY, GPN and FISV.

BUSINESS
Vantiv Holding is a leading, integrated payment processor differentiated by a single, proprietary technology platform.

According to the Nilson Report, Vantiv Holding is the third largest merchant acquirer and the largest PIN debit acquirer by transaction volume in the United States. VNTV efficiently provides a suite of comprehensive services to merchants and financial institutions of all sizes.

Vantiv Holding is responsible for certain third parties under Visa (V), MasterCard (MA) and other payment network rules and regulations, including merchants, Independent Sales Organizations, third party service providers and other agents, which VNTV refers to collectively as associated participants.

SINGLE PROPRIETARY TECHNOLOGY PLATFORM
Vantiv Holding’s technology platform offers clients a single point of service that is easy to connect to and use in order to access a broad range of payment services and solutions.

Vantiv Holding’s integrated business and single platform also enable them to innovate, develop and deploy new services and provide us with significant economies of scale.

Vantiv Holding’s varied and broad distribution provides VNTV with a large and diverse client base and channel partner relationships. VNTV believes this combination of attributes provides the company with competitive advantages and has enabled VNTV to generate strong growth and profitability.

Vantiv Holding’s believes its single, proprietary technology platform is differentiated from competitors' multiple platform architectures.

Because of Vantiv Holdings single point of service and ability to collect, manage and analyze data across the payment processing value chain, VNTV believes it can identify and develop new services more efficiently.

Further, Vantiv Holding believes that once developed, VNTV can more cost-effectively deploy new solutions to clients through a single platform. VNTV’s single scalable platform also enables them to efficiently manage, update and maintain our technology, increase capacity and speed and realize significant operating leverage.

GOVERNMENT REGULATION
Vantiv Holding’s business is impacted by laws and regulations that affect the industry. The number of new and proposed regulations has increased significantly, particularly pertaining to interchange fees on credit and debit card transactions, which are paid to the card issuing financial institution.

In July 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, which significantly changed financial regulation. Changes affecting the payment processing industry include restricting amounts of debit card fees that certain issuing financial institutions can charge merchants and allowing merchants to set minimum dollar amounts for the acceptance of credit cards and offer discounts for different payment methods.

These restrictions could negatively affect the number of debit transactions, and prices changed per transaction, which would negatively affect Vantiv Holding’s business. The Dodd-Frank Act also created a new Consumer Financial Protection Bureau, or the CFPB, that became operational on July 21, 2011 and will assume responsibility for most federal consumer protection laws in the area of financial services, including consumer credit.

INTELLECTUAL PROPERTY
As of December 31, 2011, Vantiv Holding owns four U.S. issued patents and one U.S. pending patent application. These patents generally relate to systems and methods related to payment system functionality.

COMPETITION
Merchant Services
Merchant Services segment competitors include Bank of America (BAC) Merchant Services, Chase Paymentech Solutions (JPH), Elavon a subsidiary of U.S. Bancorp (USB)), First Data Corporation, Global Payments (GPN), Heartland Payment Systems (HPY). and WorldPay US, Inc.

Financial Institution Services
Financial Institution Services segment competitors include Fidelity National Information Services (FIS), Inc., First Data Corporation, Fiserv (FISV), Total System Services (TSS) and Visa Debit Processing Service.

In addition to competition with direct competitors, Vantiv Holding also competes with larger potential clients that have historically developed their key payment processing applications in-house, and therefore weigh whether they should develop these capabilities in-house or acquire them from a third party.

EMERGING COMPETITION
Furthermore, Vantiv Holding faces new competition emerging from non-traditional competitors offering alternative payment methods, such as PayPal and Google. These non-traditional competitors have significant financial resources and robust networks and are highly regarded by consumers. If these non-traditional competitors gain a greater share of total electronic payments transactions, it could also have material adverse effect on our business, financial condition and results of operations.

ABOUT FIFTH THIRD BANCORP
Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. Fifth Third Bank is an Ohio banking corporation and a wholly-owned indirect subsidiary of Fifth Third Bancorp.

As of December 31, 2011, Fifth Third Bancorp had $117 billion in assets and operated 15 affiliates with 1,316 full-service Banking Centers, including 104 Bank Mart locations open seven days a week inside select grocery stores and 2,425 ATMs in 12 states throughout the Midwestern and Southern regions of the United States. Fifth Third Bancorp operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Investment Advisors. Fifth Third Bancorp's common stock is traded on the NASDAQ Global Select Market under the symbol "FITB."

ABOUT ADVENT
Since 1984, Advent has raised $26 billion in private equity capital and completed over 270 transactions in 35 countries. Advent's current portfolio is comprised of investments in 54 companies across five sectors—Retail, Consumer & Leisure; Financial and Business Services; Industrial; Technology, Media & Telecoms; and Healthcare. The Advent team includes more than 170 investment professionals in 17 offices around the world.

PRE-IPO OWNERSHIP
Prior to the offering, Advent owned 99.4% of Vantiv, Inc., which owns 50.93% of Vantiv Holding. In connection with the separation transaction from Fifth Third Bank, Advent entered into various agreements with us that provide for the payment of a management fee to Advent as well as rights to appoint members of the board of directors of Vantiv Holding and registration rights.

Should the underwriters exercise their option to purchase additional shares, Vantiv, Inc. intends to use the net proceeds it receives from the portion of the underwriters' option to be provided by it to purchase Class B units from the Fifth Third investors. These Class B units will convert into Class A units upon any such purchase.

POST-IPO OWNERSHIP
VNTV is the majority unit holder and voting control, 60% of units voting power and economic interests in Vantiv Holding.
See diagram here.

S-1, page 8

Post-IPO Vantiv, Inc (VNTV) will own 60% of the operating company, Vantiv Holding, FITB will own 40%.If all of FITB’s class B shares are converted into VNTV shares, then FITB will own 40% of VNTV.FITB is restricted, however, to only 18.5% voting in VNTV, most likely an effort to keep regulators at bay.

FITB’s class B shares in VNTV will have “no economic interests*” in VNTV, which probably means those shares cannot receive dividends beyond an 18.5% share.*S-1 page 11.

DIVIDEND POLICY
No dividends planned for common shareholders.

EMPLOYEES
As of December 31, 2011, Vantiv Holding had 2,455 employees. As of December 31, 2011, this included 589 Merchant Services employees, 115 Financial Institution Services employees, 514 IT employees, 876 operations employees and 361 general and administrative employees.

USE OF PROCEEDS
VNTV expects to net$461 million from its IPO at the price range mid-point of $17.

All of the net proceeds will go to Vantiv Holding in exchange for Class A units. Vantiv Holding intends to use such net proceeds to repay $460.8 million principal amount of our existing senior secured credit facilities.

Vantiv Holding’s senior secured credit facilities consist of two first lien facilities that mature on November 3, 2016 and November 3, 2017, respectively. As of December 31, 2011, Vantiv Holding had $1.6 billion in term B-1 loans outstanding, $150.0 million in term B-2 loans outstanding and $150.0 million of availability under a $150.0 million revolving credit facility. The weighted average interest rate under Vantiv Holding’s senior secured credit facilities as of December 31, 2011 was 4.6%, before the effect of an interest rate swap.

The CFO said this in the road show:“In connection with the IPO we’ll pay down debt and reduce debt costs on remaining indebtedness; which when combined with the IPO pay down results in $60mm in annualized interest payment savings.” That adjustment was made in regarding financial ratios above in the Valuation & Conclusion sections.