Payment M&A activity in the payment acceptance space is at an all-time high in Europe, both in terms of liquidity and valuations.
Recent activity is being driven by three trends: 1) strategic buyers broadening their product capabilities, 2) monoline acquirers and processors pursuing economies of scale and geographical expansion by buying bank assets, and 3) private equity buyers aggressively targeting the industry. We expect these trends to continue to drive M&A activity for several more years – writes Marco Mazzonetto, Manager, specializing in M&A in Europe – First Annapolis.
First Annapolis tracked more than 60 payment acceptance related transactions (including IPOs) in Europe between 2013 and 2015 with a combined deal value of more than €11 billion. The majority of deals were driven by strategic buyers, whose motivations ranged from product capability expansion to geographical expansion to pure consolidation plays (see Figure 1).
Figure 1: Breakdown of Recent EU Payments M&A
Three key trends are driving recent payment acceptance M&A activity in Europe:
1. Diversified payment acceptance providers are leveraging M&A to broaden their product capabilities.
Diversified payments providers have been aggressively adding product capabilities via acquisitions, particularly in the areas of e-commerce, mobile, and gateway services (see Figure 2).
Figure 2: Transaction Examples – Strategic Buyers Broadening their Product Capabilities
Source: First Annapolis Consulting research and analysis.
2. Monoline acquirers and processors are pursuing economies of scale and geographic expansion.
Large monoline acquirers and service bureau processors are engaged in geographic expansion and general consolidation, often via acquisition of bank assets. Both businesses have high fixed costs, and scale is critical to long-term competitiveness. The growth ambitions of these businesses are a good match with banks’ desire to divest non-core payment businesses to raise capital (see Figure 3).
Figure 3: Transaction Examples – Monoline Acquirers and Processors
3. Financial buyers are exploiting strong value-creation opportunities.
Although financial buyers accounted for only ~20% of the transaction count, they were responsible for the single largest transaction in each of the past three years. The appetites of financial buyers vary, but typically these buyers are looking for strong franchises with stable core businesses that also offer strong growth or operational improvement opportunities (see Figure 4). Thus far, private equity buyers have generally proven to be quite successful in creating shareholder value (as noted in the tremendous outcome on Advent International/Bain Capital’s investment in WorldPay).
Figure 4: Transaction Examples – Financial Buyers
In general, we expect these M&A trends and general activity levels to continue in Europe:
- Strategic players will continue to pursue product-led acquisitions to position themselves for more integrated, more omni-channel payment acceptance.
– No payment company has yet fully mastered omni-channel payment acceptance.
– Similarly, no one has yet cracked the code on driving mobile commerce and wallet acceptance.
– And finally, pan-European payment acceptance remains a largely unmet vision, at least at the POS.
- Monoline acquirers will continue to develop acquiring alliances with banks.
– Acquirers and processors will continue to pursue scale and expanded geographic footprints, primarily driven by M&A.
– Banks will continue to divest acquiring assets as the valuations and strategic rationales are compelling.
- Private equity will continue acting as a driver of consolidation in payment acceptance.
– There are still strategic assets of interest in the marketplace.
– We expect more private equity to private equity deals in which one private equity owner exits in exchange for another, as well as ongoing IPO activity.
While expanding liquidity and valuations cannot last forever, we do not anticipate any cliffs or bursting of bubbles in the near-term. Rather, a reasonable expectation is for some rationalization of valuations as current deal cycles start to produce more disappointing outcomes (e.g, POWA Technologies which filed for bankruptcy in February 2016 after being once valued at $2.7B and seen as a darling of the UK technology scene) and for some trail-off in liquidity as consolidation starts to become more visible.