Three big private equity firms are in talks to buy Fidelity National Information Services Inc , sources familiar with the situation said on Thursday, a deal that, if completed, would rank as the biggest leveraged buyout since the financial crisis hit.

Blackstone Group , Thomas H. Lee Partners and TPG Capital are in talks to buy the company, which provides payment processing and other banking services, sources familiar with the situation said.

If the deal gets done, it would provide striking evidence that big-money buyouts are returning after credit markets plunged into a deep freeze because of the economic downturn.

The Wall Street Journal first reported news of Blackstone's interest in Fidelity National.

Fidelity National's shares rose 4.96 percent to $27.29 after rising as much as 18 percent.

The company provides services including payment processing and risk management. The company recently reported a rise in profits for the first quarter, with net income of $93.6 million, compared with $33 million a year ago.

Based on deals done in similar sectors in the past few years, Fidelity shares could be valued in the ballpark of up to $36 on our current estimate, said Robert W Baird analyst David Koning.

Fidelity National's valuation prior to news that it was a takeover target was relatively low and the company was generating strong free cash flow with a high level of recurring revenue, said Duncan Williams & Co analyst Greg Smith.

Transaction processing companies like (Fidelity National) have long been sought after by private equity firms, Smith said. It's the type of company that fits the LBO mold quite well.

Fidelity National, which traces its history to the 1960s, is a former subsidiary of Fidelity National Financial and was spun off into a separate company in 2006. Last year it struck a $2.94 billion deal to buy Metavante Technologies.

FIS and the private equity firms declined to comment.

BUYOUT RETURN

The news marks a turnaround for a market that has not seen large deals since the end of the buyout boom when there were LBOs such as Blackstone's $26 billion deal to buy Hilton hotels and Kohlberg Kravis Roberts' $26 billion deal to buy payment processor First Data Corp.

Large leveraged buyouts have been pretty much extinct since the summer of 2007, when the financial crisis halted most financing for big deals, banks were stuck with debt and the economy froze.

Since then, the economy and stock markets have begun to recover, and confidence is returning to the banking sector. Bankers and private equity firms have started viewing mega-buyouts of $10 billion or more as achievable -- something that was not even on the radar just six months ago.

(Additional reporting by Paritosh Bansal in New York and Anurag Kotoky and Sweta Singh in Bangalore) (Reporting by Megan Davies. Editing by Maureen Bavdek, Gunna Dickson and Robert MacMillan)

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