Dealmaking in global payments sector hits new high
Transactions hit $46bn in the first six months of the year compared with 2017’s $32.9bn
Rapid growth driven by a transformation in the way consumers pay for products has pushed dealmaking in the global payments industry to record heights, with 2018 already the biggest year ever in terms of acquisitions in the sector.
Payments technology — which includes consumer-facing products such as Apple Pay as well as the back-end infrastructure that enables transactions — has stood out even amid a general surge in merger and acquisition activity.
There were 102 transactions worth a total of $46bn in the first six months of the year, according to data from Dealogic, surpassing 2017’s full-year figure of $32.9bn.
PayPal alone made four acquisitions in five weeks in May and June, including swooping on Swedish group iZettle with a $2.2bn deal just weeks before it was due to list on the stock market.
Innovations such as contactless payments and online shopping have prompted massive changes in consumer behaviour in recent years; figures released last month showed cash is no longer the most popular form of payment in the UK, while other countries such as Sweden have moved even closer to becoming “cashless societies”.
Such consumer products have increased demand from merchants for new ways to cater to different customers, driving companies that deal with the back-end of payments to also expand their offerings.
Paypal’s recent acquisitions range from a marketing technology business to a company that helps sellers prevent fraud. Dan Schulman, PayPal chief executive, told investors at a recent meeting that he wanted the company to become “an end to end, one-stop solution for digital commerce . . . we are increasingly not just being a checkout solution”.
Investor enthusiasm for the sector has been reflected in public markets — shares in Dutch group Adyen, which competes with PayPal by enabling businesses to accept a range of different payment types, doubled on their first day of trading after its initial public offering last month. Paypal’s own shares have risen 60 per cent over the past 12 months, while fellow US group Square has jumped more than 180 per cent.
Payments companies’ high cash flow and relatively asset-light businesses have also made them attractive to private equity groups, which have been particularly active buying units that were previously owned by banks.
James Brocklebank, a managing partner at Advent International, said: “Ten years ago payments was sort of a boring utility which nobody cared about — it was just about finding the cheapest processing. Today most merchants see their payment providers as really strategic partners because they can help them sell more.”
Advent has been involved in 31 payments acquisitions in recent years, teaming up with Bain Capital and more recently Hellman & Friedman for several deals in Europe.
The surge in M&A and valuations has led some to question whether investor excitement for all things “fintech” and private equity groups’ bulging coffers could cause an unsustainable bubble in the sector.
However, Mr Brocklebank said he was confident there was extensive scope for further growth even in relatively established markets. “In countries like Germany and Italy the penetration of electronic payments is still really low. There’s significant growth to come in those places as more and more people adopt cards and electronic payments — we can see emerging market-like growth in developed economies, which is a really interesting opportunity.”