Fiserv's $22 billion deal for First Data is one of the biggest in fintech history, and already some on Wall Street are warning of a culture war

First Data

First Data CEO Frank Bisignano

• Financial technology companies Fiserv said on Wednesday it is acquiring First Data for $22 billion.
• The companies said they expect at least $500 million in revenue and $900 million in cost savings from synergies - the benefits created when two companies merge.
• Some Wall Street analysts remain skeptical those estimates are practical considering the lack of overlap between the two companies and the difficulty they will face selling to each others' customers.
• One analyst in an investor note pointed to First Data's below average employee rating on Glassdoor as a potential indicator of culture issues.

It's one of the biggest deals in financial technology history, with promises of hefty additional revenue generation and cost savings to boot.

But some Wall Street analysts are skeptical about the $1.4 billion in revenue and cost saving synergies Fiserv and First Data have said will come from their $22 billion deal announced on Wednesday.

The announcement came to the surprise of many in the industry due to the lack of overlapping business the two companies share. Fiserv's main business is focused on financial technology for small- and medium-sized banks while First Data specifically handles payment processing.

The companies said they expected at least $500 million in revenue synergies - the benefits created when two companies merge - thanks to areas such as bank merchant services and FirstData's card payment solution for merchants, Clover. That's in addition to $900 million the firms expect to save in costs over the same time period from consolidating the firms' corporate structures and streamlining tech and operations.

However, Wall Street analysts remain skeptical the two companies will be able to achieve such a lofty goal.

Moshe Katri, an analyst at Wedbush, told Business Insider that while cost savings can be expected through the new deal, creating additional revenue might be a tall task.

"The revenue synergies are likely optimistic," Katri said. "I would say that historically, Fiserv has not been able to consistently deliver on the top line. And I would say the same thing on First Data."

In a note to clients, SunTrust Robinson Humphrey analyst Andrew Jeffrey offered a similar sentiment.

"We have faith in Fiserv's management to at least execute around $900 million of run-rate cost synergies; projected $500 million of rev synergies will likely be much more difficult," the note said. "While we appreciate the merits of combining the companies' complementary offerings and FI bases, they couldn't be more culturally disparate. In addition, a recent First Data customer conversation highlights challenges with US service levels, in our opinion. This raises the execution bar for the combined co, in our view."

Larry Berlin, a senior vice president that specializes in research at venture capital firm First Analysis, told Business Insider he'd never imagine the two companies would merge. While there is some overlap in what they do in the payments space, he said they are still different businesses in different markets.

The base of Fiserv's business is providing core banking systems to small- and medium-sized banks, he said. That type of offering isn't appealing to many of First Data's clients: large banks and merchants.

First Data clients like Wells Fargo and Bank of America don't need core processing from Fiserv, as they handle it internally, Berlin said. And while Fiserv already has those banks as clients for its bill payment offering, getting them to adopt its main business would be a big ask, he added.

Meanwhile, Colin Plunkett, an analyst at Morningstar, questioned the combined company's ability to meet its cost-savings plans. He cited the fact that since Frank Bisignano was named CEO of First Data in 2013 the company's operating expenses have barely moved, suggesting it is already fairly lean.

Plunkett said that because the operating platforms will not be merged, cost-cuts would have to come from reducing corporate overhead. He also cited Fiserv's 2015 plan to reach cost savings of $250 million over five years, a significantly more moderate expectation compared to the company's latest goal.

Corporate culture is always a big factor during M&A. The potential challenges of bringing together two companies of this size was noted by some analysts.

In Plunkett's note, First Data's rating on Glassdoor, a website where current and past employees can rate employers, was highlighted for its low ratings. On approximately 2,500 reviews the company has an average rating of 2.8 out of 5, with Bisignano receiving a 49% approval rating, Plunkett wrote. That's in comparison to Fiserv's rating of 3.3, along with CEO Jeff Yabuki earning a 78% employee approval rating. Plunkett goes on to point out that the average rating for all the firms Glassdoor monitors is roughly 3.4.

"We think it's worth mentioning that First Data's Glassdoor employee ratings are alarming," the note said. "While we recognize that these reviews can be falsified and may not give a totally accurate picture of a company, we think it's instructive and warrants further attention in our ongoing research."

Some analysts, however, were less skeptical of Fiserv and First Data's claims of cost savings and revenue generation. Jeff Cantwell, an analyst at Guggenheim, told Business Insider his initial reaction to the deal was positive.

"From a strategic standpoint, it makes sense for both sides to combine," Cantwell said. "You think about going forward. There should be a lot of opportunities on the revenue side and on the cost side for the combined company. It should be a good deal."

A spokeswoman from Fiserv declined to comment, but reiterated remarks regarding potential synergies between the two companies made by Yabuki in the conference call Wednesday morning. First Data did not return multiple requests for comment.