UPDATE 2-Vantiv to buy Mercury Payment for about $1.65 bln

Mon May 12, 2014 7:45pm EDT

* Vantiv buys Mercury from Silver Lake

* Mercury to withdraw IPO plans

* Deal to modestly add to Vantiv's 2014 EPS (Adds CEO and analyst comments, background)

By Abhirup Roy

May 12 (Reuters) - Payment processor Vantiv Inc said it would buy Mercury Payment Systems LLC for about $1.65 billion from private equity firm Silver Lake Group LLC to strengthen its presence in the fast-growing market for integrated payment systems.

The deal is expected to complement its acquisition of Element Payments Services Inc in last July and enhance Vantiv's distribution network.

"It's predicted that by 2017, 30 percent of the payment volume will be through integrated payments and that's been growing rapidly over the last several years," Vantiv's Chief Executive Charles Drucker said.

Vantiv expects the transaction to contribute 1 to 2 percentage points to its net revenue growth per year and to modestly add to its earnings per share in 2014.

Regarding the price, Nomura Securities analyst Tulu Yunus said, "Given that it's a unique, one of a kind property I think it was reasonable."

Mercury, which filed to go public this year, said it was suspending its IPO plans.

The IPO was expected to value the Durango, Colorado-based Mercury at up to $2.5 billion, Reuters reported in November.

Silver Lake bought a roughly 60 percent stake in Mercury for an undisclosed amount in 2010, leaving the rest with founders Marc Katz and Jeffrey Katz and investor Larry Stone.

Mercury's revenue rose 17 percent to $237 million in 2013, while its adjusted Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) rose 23 percent to $93 million.

Founded in 2001, Mercury grew to become one of the five largest nonbank payment processors in the United States as measured by the number of transactions.

The company targets small and medium-sized merchants such as restaurants and stores.

Credit Suisse, BofA Merrill Lynch were the financial advisers to Vantiv, while Morgan Stanley, JPMorgan, Barclays, and FT Partners advised Mercury.

The deal is expected to close in the second quarter of this year.

Vantiv shares closed at $29.82 on the New York Stock Exchange on Monday. (Additional reporting by Anil D'Silva in Bangalore; Editing by Sriraj Kalluvila)