Capellas to Steer First Data Toward E-Commerce

Michael Capellas, the former CEO of PC maker Compaq and long-distance company MCI, has been tapped to lead First Data (NYSE: FDC) after the payment processing firm's planned private equity buyout is completed.

Kohlberg Kravis Roberts & Co. plans to complete its takeover of First Data -- valued at US$29 billion when it was announced in April -- sometime during the current quarter. The transaction will end First Data's run as a publicly traded company, putting Capellas at the helm of a private concern for the first time in his career -- though the odds are good that KKR will try to bring the company public once again after making some changes.

Denver-based First Data, which processes billions of dollars worth of purchases for merchants around the world, is well-positioned to become a major player in emerging payment markets, including both international e-commerce and mobile commerce, Capellas said.

Saying he was joining First Data at a "pivotal time," Capellas said he feels the company "is uniquely positioned to pioneer innovative technologies for the next-generation of electronic and mobile commerce around the world."

First Data's new owners are eyeing growth in several areas, including supporting the expansion of mobile commerce, fostering the replacement of cash and check payments with electronic alternatives and encouraging international growth from places such as China and India.

Well-Positioned In the Market

Though it will have numerous competitors for the right to support expanded e-commerce and mobile e-commerce payments, First Data may be among the best-positioned, given its extensive relationships with merchants. First Data had 2006 sales of $7 billion and has forecast that revenue growth could hit 10 percent this year.

With new solutions offering ways to handle micro-payments and to secure payments made with mobile phones -- increasingly being used as electronic wallets in some Asian countries -- the cash economy may fade away over time. At the same time, the number of checks being written to make payments has long been on the decline.

The result is increasing reliance on electronic payment solutions, which require the type of back-end processing and support that First Data specializes in.

Doing away with cash and checks and even signed credit card payments is all but inevitable, Mark Levine, a partner with Core Capital Partners, told the E-Commerce Times.

"The technological barriers have fallen, and now it's just getting people comfortable with paying with someone electronic rather than with cash currency," Levine said. "The stage is set for an explosion of mobile and contactless payment opportunities."

Capellas is a "visionary CEO," said Ric Duques, who will cede the chief executive role at First Data to the executive.

"I am certain that the company will find more innovative ways to grow First Data's powerful competitive position in the electronic payment and merchant markets, as well as its rapidly expanding international business," Duques added.

A New Experience

Capellas' recent resume features leadership stints at high-profile companies that ended when they were acquired.

He held the top seat at Compaq from 1999 to 2002, when it was bought by HP (NYSE: HPQ), where he took the role of president for a short time. Though that deal was controversial on the HP side, it was widely seen as a favorable outcome for Compaq to remain relevant in the increasingly competitive PC space.

After leaving HP sooner than expected, Capellas then moved to MCI -- then still known as Worldcom. He led the telecom carrier out of bankruptcy and prepped for its eventual acquisition by Verizon Communications in 2006.

Previously, he was chief information officer at HP and worked at SAP (NYSE: SAP) and Oracle (Nasdaq: ORCL).

Capellas has been serving as a consultant to private equity player Silver Lake Partners for the past year and said he would work with KKR and First Data as the deal moves toward finalization.

Given the track record of private equity buys -- and the specific makeup of First Data -- Capellas may oversee some selling of assets and focusing on growth areas, Tower Group Practice Leader Theodore Iacobuzio told the E-Commerce Times.

The KKR buyout suggests the company sees more value in First Data's various parts, value that can in part be unlocked through sale of some assets, Iacobuzio noted. First Data not only handles payments for credit card issues, but through joint ventures supports many merchants in handling payments and has been aggressively moving into international markets. While many of those assets fit together seamlessly, Fist Data also operates an extensive ATM network that reaches overseas as well and that may be more valuable to another company.

First Data's spinoff of Western Union, which occurred before the KKR deal, was an unmistakable signal that First Data was "finding it difficult to find synergies among its related -- though disparate -- lines of business," he added.

Given the success First Data has had with merchants, the credit card services business may be a likely candidate for spinoff and would likely have its share of would-be buyers, Iacobuzio concluded.