One billion dollars a year—it's not a bad profit margin, if you can manage it. In fact, it's exactly the sort of drool-inducing multiple that continues to draw more and more investors into private equity.
But how do you achieve it? For that, we turn to Advent International and Bain Capital, two firms that began a very profitable foray into the payments space seven years ago today.
On December 1, 2010, Advent and Bain Capital completed their purchase of Worldpay, a provider of card payment services in the UK and Europe, with later media reports pegging the buyout's value at £2 billion and the firms' combined investment at about £700 million. The deal quickly proved wise: As an established player in a booming space, Worldpay was uniquely positioned to capitalize on a global explosion in ecommerce activity. It didn't take long for Advent and Bain Capital to begin reaping the rewards.
In April 2013, Worldpay reportedly raised a £700 million loan, about half of which went toward paying a dividend to its owners. A couple years later, private equity firms including CVC Capital Partners and Hellman & Friedman were said to approach Advent and Bain Capital about a sale, but the two firms ultimately balked, rejecting a reported £6.6 billion offer. They had a different plan: taking the company to the public markets.
In October 2015, Worldpay debuted in London at a valuation of £4.8 billion, the city's largest IPO of the year at the time. Advent and Bain Capital sold about 505 million shares in the offering, earning £1.21 billion in proceeds and retaining a 48.7% combined stake. In less than five years of ownership, the firms had teamed to log £3.2 billion in profits between cash and stock, according to The Wall Street Journal, equating to $4.9 billion using 2015's conversion rate.
All that money didn't come from nowhere, however. The company's profits were driven by internal growth. Including loans, Advent and Bain Capital invested more than £1 billion in Worldpay during their ownership, helping pay for the hiring of some 2,500 people.
In the coming years, the two firms continued to reduce their stakes in Worldpay—and continued to fill their coffers. In April 2016, they sold a reported 13.8% stake for £740 million. Five months later, they sold off a further £987 million in stock to reduce their holding in the company to 10.7%, per reports. And in February 2017, Advent and Bain Capital netted a further £607 million in yet another stock sale.
With Advent and Bain Capital almost completely out of the picture and Worldpay still thriving in the international payments space, a new owner emerged. Earlier this year, in July, fellow payments business Vantiv agreed to acquire the company in a deal with a reported enterprise value of £9.3 billion, greatly increasing its footprint as an ecommerce powerhouse.
Worldpay's future is as part of an emerging (but already massive) financial conglomerate. For private equity firms, at least, the company's profit-filled past was no doubt much more interesting.