Current Trends Demand Integrated Payments Technology
Payments technology has experienced evolutionary changes in the past decade with increased adaptation of card-based and electronic payments for both B2C and B2B payments. Emerging innovations within technology companies & financial institutions are driving such changes. The highly fragmented nature of the sector increases acquisition opportunities for both financial and strategic acquirers, targeting state of the art technology and established brands. Strategic acquirers are mainly looking for three core capabilities a) to add alternative payment processing capabilities, b) integrate payment systems and c) enhance mobile and electronic payment functionality.
Sector Growth is Steady
Payments technology has experienced strong growth since the economic downturn, primarily driven by growing demand for newer payment methods and increased volume of transactions for both card-based and ACH transactions.
Sector has maintained growth despite margin pressure caused by increasing competition for payment processing and in expanding regulatory climate.
Ubiquity of e-commerce, growing popularity of mobile devices and increased demand for convenient payment tools are driving significant growth in the sector. Steadily
Check-based payments steadily declined (Fed Payment Study) as B2C and B2B payments shifted toward card-based and electronic transactions. Social network-based payment technologies
created new market opportunities.
Technology Innovation is Key Sector Driver
Significant advances in contactless payment technology such as near field communications (NFC), quick response codes (QR), and cloud- based payment solutions are shaping consumer payment behavior
Traditional incumbent card payment methods with Magnetic Stripe , EMV –chip and PIN identification are facing major competition.
Emerging alternative financial services technologies to serve under banked customers directly competes with traditional banking checking account and debit card solutions.
Integrated cloud-based payment technology, which connects various POS systems, accounting, ERP processes and payment processing software, streamline and automate the payment process.
Continued Capital Investment in Early Stage Payments
Venture capital investments in payment technology companies reached a 5 year high with over $1 billion invested in 193 companies.
Major focus of early stage investments ranged from a) mobile & online payments, b) point-of-sale technology, c) payment processing technology and d) alternative payment services.
Venture arms of both financial service companies (American Express and Citi) and technology giants (Google & Intel), joined traditional venture capital firms investing in niche capabilities and innovative technologies.
0 10 20 30 40 50 60 2003 2006 2009 2012 2015P Debit card Checks Credit Card ACH Private Level Prepaid
US Non-cash Payment Transaction Volume (in billions)
Source: Federal Reserve Payment Study 2003-2012 2015P, Headwaters Payment-tech Projection
Reflecting on 2014 M&A Activity: Focus is Online, Mobile, Card technology and
Integrated Payment Technology in Niche Markets
High recurring revenue, long term customer contracts, diversified customer base and steady top-line growth has made payment technology companies one of the most attractive targets for acquisition. Moreover, constant evolution and innovation within the payment industry, increased online and mobile payment transactions, and competitive pressures forced established players to either improve R&D or acquire innovative technology providers to stay competitive. Not surprisingly, 2014 M&A activity to date had 3 major themes, a) integrated payment technology b) electronic and mobile payments and c) payment processing platforms.
Strategic Acquisitions
FleetCor’s acquisition of Comdata for $3.4 billion marks a substantial milestone for the company as it increases scale and adds complementary alternative payments technology. As an issuer and a processor, Comdata provides fleet, virtual card, and gift card solutions to over 20,000 customers and enables over $54 billion in payments annually. The recent acquisition of Evolution1 by WEX Inc. for $532 million, provides cloud-based technology and payments solutions for the healthcare industry, integrates consumers, providers, payers, systems and data to provide a single end-to-end user experience. Vantiv’s acquisition of Mercury Payments for $1.6 billion to obtain an integrated payments technology for various point of sale systems to serve online and omni-channel commerce, and Global Payments acquisition of PayPros for $420 million with capabilities to provide fully-integrated payment solutions for 58,000 small-to-medium sized merchants in the U.S., shows a common strategy focused on new vertical markets to accelerate
growth.
Financial Acquirers
Warburg Pincus, the global private investment firm with a focus on financial technology, acquired transportation payments technology provider EFS – Electronic Funds Source, which was majority owned by Pilot, for over $1 billion. EFS offers a range of private-label cards and mobile applications for transportation companies and their employees that are accepted at more than 10,000 locations across North America. The Nashville, Tennessee-based company was created in 2011 with the merger of First Data Corp's EFS transportation services business and Transportation Clearing House.
Date
Announced Target Acquirer
Enterprise
Value ($mil) EV/ REV Target Core Business
8/29/2014 Moneycorp Bridgepoint $352 2.4x Integrated Online Payments 8/12/2014 Comdata Inc. FleetCor Technologies, Inc. $3,450 5.9x B2B Electronic Payment Solutions
8/8/2014 SafeNet Gemalto $890 2.6x Digital Information Security for Fund Transfer 7/30/2014 TouchNet Information Systems Heartland Payment Systems $375 6.3x Integrated Commerce Solutions 7/21/2014 Welch ATM Cardtronics $160 - Retail ATM Services
7/21/2014 Retail Decisions (ReD) ACI Worldwide $205 11.3x E-commerce Fraud Prevention Solutions 7/1/2014 Meritus Payments Optimal Payments $210 2.8x Online Payments and Risk Management 6/16/2014 Evolution1 WEX $532 - Electronic Payments 6/12/2014 MPayMe Powa $75 2.5x Mobile Payment Technology 5/28/2014 Euroline Nordic Capital $332 - Card Acquiring Solution 5/27/2014 Check Intuit $360 20.6x Mobile Bill Payment 5/12/2014 Mercury Payment Systems Vantiv $1,650 7.0x Integrated Payment Processing 4/16/2014 Electronic Funds Source (EFS) Warburg Pincus $1,000+ - Corporate Transportation Payment Solutions 3/31/2014 Andera Bottomline Technologies $48 5.4x Electronic Payment Technology 3/24/2014 NETS Group Advent International , ATP,
Bain Capital Ventures $3,140 2.9x Payment Processing 3/10/2014 HiFX Plc Euronet Worldwide, Inc. $242 3.8x Electronic International Money Transfer
2/4/2014 BlueKite Xoom Corporation $15 - Electronic Cross Border Bill Payment 1/24/2014 PayPros Global Payments $420 4.2x Integrated Merchant Payment Solution
Publicly Traded Companies
Trading Metrics 52-Week
($ in millions, except per share data) Stock Price Range Market Enterprise EV/ EV/ Category/Sector Company Ticker Price Low High Cap Value Revenue EBITDA
C ar d Iss ue r/S o lut io
ns American Express Company NYSE:AXP $90.0 $72.1 $96 $94,680 $134,520 4.3x N/A Blackhawk Network Holdings NASDAQ:HAWK 25.1 20.3 29.7 1,470 1,366 1.1x 12.7x
Discover Financial Services NYSE:DFS 63.4 47.7 64.4 29,290 42,540 6.0x N/A FleetCor Technologies NYSE: FLT 141.4 98.4 149.9 11,760 12,932 12.9x 23.4x
MasterCard NYSE:MA 76.6 62.3 84.8 88,630 84,410 9.4x 16.0x Visa Inc. NYSE:V 214.3 175.1 235.5 134,740 130,680 10.5x 16.3x WEX Inc. NYSE: WEX 113.2 78.8 118.3 4,390 4,779 6.3x 15.7x
P ay m ent P ro ce ss ing
Euronet Worldwide Inc. NASDAQ:EEFT 53.2 35.2 54.7 2,790 2,793 1.9x 14.7x EVERTEC, NYSE:EVTC 23.2 20.6 26.3 1,830 2,501 7.0x 16.8x Global Payments Inc. NYSE:GPN 72.5 47.7 74.5 4,940 6,188 2.4x 11.9x Heartland Payment Systems NYSE:HPY 48.4 37.0 50.4 1,400 1,502 0.9x 11.5x Higher One Holdings, NYSE:ONE 3.8 3.5 10.7 177 262 1.2x 6.1x
Ingenico EPA:ING 75.0 51.6 77.9 4,040 4,294 3.1x 15.6x Vantiv, Inc. NYSE:VNTV 30.7 25.2 34.9 4,310 7,569 3.4x 14.0x
P ay m ent S er vi ce s
Alliance Data System NYSE:ADS 261.4 196.2 300.5 14,510 24,159 5.1x N/A CassInformationSystems NASDAQ:CASS 46.5 45.0 68.8 536 355 3.0x 9.7x Deluxe Corporation NYSE:DLX 60.0 38.1 60.9 2,980 3,486 2.2x 9.4x Moneygram International Inc. NasdaqGS:MGI 14.1 12.5 22.0 768 1,737 1.1x 6.2x The Western Union Company NYSE:WU 17.5 14.6 19.5 9,260 11,410 2.0x 8.2x
P ay m ent T ec hn o lo gy S o lut io
ns ACI Worldwide, Inc. NASDAQ:ACIW 19.4 16.2 22.0 2,210 2,915 3.0x 13.9x Bottomline Technologies NASDAQ:EPAY 27.9 26.0 37.4 1,040 997 3.4x 30.6x DH Corporation TSE: DH 33.5 24.8 33.8 2,710 3,826 3.8x 13.9x Digital River, Inc. NASDAQ:DRIV 15.6 13.6 19.7 466 209 0.6x 6.1x Fidelity National Information Services NYSE:FIS 57.8 44.2 58.1 16,500 20,636 3.3x 12.8x
Fiserv, Inc. NasdaqGS:FISV 65.2 46.4 65.8 16,260 19,781 4.0x 13.6x NCR Corp NYSE: NCR 33.2 28.6 41.6 5,580 9,027 1.4x 9.4x
Qiwi plc NASDAQ:QIWI 37.1 26.1 59.2 1,940 1,512 3.6x 13.1x TotalSystemSvcs NasdaqGS:TSYS 2.9 2.1 3.6 175 248 0.7x 9.5x VeriFone Systems, Inc. NYSE:PAY 35.5 20.2 38.3 3,960 4,670 2.6x 25.3x
2.8x 2.7x 2.6x 7.2x 0.0x 5.0x 10.0x 15.0x Payment Processing Payment Services Payment Technology Solutions Card Issuer/ Solutions Industry Average LTM Enterprise Value/Revenue 12.9x 8.4x 14.8x 16.8x 0.0x 5.0x 10.0x 15.0x 20.0x 25.0x 30.0x 35.0x 40.0x Payment Processing Payment Services Payment Technology Solutions Card Issuer/ Solutions LTM Enterprise Value/EBITDA Industry Average
Da
M&A Outlook
Increased competition between established financial institutions and technology innovators will create an ideal environment for consolidation for the following reasons: a) add capabilities to existing technology platform; b) expand product lines by acquiring complementary solutions; c) add niche products by leveraging existing brand and customer relationships. While we expect the continued consolidation within payment companies, some headwinds are expected from regulatory reforms and compliance requirements. Despite such challenges, consolidation will continue primarily due to improved valuation multiples and favorable sector trends.
Headwaters Financial Technology Coverage Universe
Payments
Banks
Insurance
Capital
Markets
Card
Issuer
Processor Payment Gateway MSOs Payment Platform Risk Management Credit Monitoring Fraud Detection Payment Processing Loan origination Mobile banking SecuritiesTrading
Risk Management
POS Trading Analytics Risk Assessment Predictive Analytics
Big
Data
Telematics
Cloud/
SaaS
BPO
Mobile
David Francione
Managing Director
Thirteen Highland Cir, Suite C Needham, MA 02492 Office: (617) 419-2040 Cell: (617) 458-9254 [email protected] Jit Basak, Ph.D. Senior Associate
Thirteen Highland Cir, Suite C Needham, MA 02492 Office: (617) 419-2040 Cell: 312.209.2001
[email protected] David Francione, Managing Director, has over 18 years
of experience as an investment banker, corporate development executive and management consultant. Previously, Mr. Francione served as Senior Vice President at Silverwood Partners, a global investment banking firm. Prior to joining Silverwood Partners, Mr. Francione was head of corporate development for Elcom International, Inc., a $500 million international publicly-traded eCommerce technology platform company. Mr. Francione began his career with SS&C Technologies (Nasdaq: SSNC), a leader in securities processing software and analytics and then joined the investment banking group at Advest, Inc. (acquired by Merrill Lynch), where he focused on public offerings, mergers and acquisitions, private financings and valuations for financial services, technology and consumer products companies.
Mr. Francione holds a Bachelor of Science degree in Finance from CCSU and earned an MBA in finance from the University of Connecticut. He served as a member of the board of directors for the University of Connecticut alumni association and was co-chair of its investment committee and an adjunct faculty member.
Jit Basak, Senior Associate, has over 10 years of professional experience most recently at Pfizer, Inc. Dr. Basak holds an MBA in Finance from University of Connecticut and PhD in Chemistry from University of Illinois at Chicago and an alumnus of IIT Kanpur, India. If you are an owner of a Payment or Financial Technology business and would like to learn more about how best to maximize your company’s value or grow through an acquisition, please contact Headwaters’ Financial Technology Team.
