Why Payments Are a Bright Spot for Dealmakers
The merger of two French payments companies will create a European rival to U.S. giants as mounting competition rewards scope and scale
Consumers can afford to ignore the payments sector—the often-concealed plumbing of commerce offline and increasingly online. Not so bankers and investors.
On Monday, France’s Worldline WLN -0.70% agreed to buy its local peer Ingenico ING -1.18% for a mix of shares and cash, valuing the company at €7.8 billion ($8.63 billion). The deal will create the fourth-largest payment services company globally, giving it the heft to compete with U.S. rivals like Fiserv, FIS and Global Payments. Ingenico’s shares rose 12%.
Consolidation in this maturing industry has further to run, and Worldline would like to do more than its fair share of it.
The latest deal follows Visa’s $5.3 billion purchase of Plaid, announced in January, and a rush of activity last year. There were nearly $195 billion worth of transactions involving a payments company in 2019, according to Dealogic, more than double the previous high in 2015.
The payments market has grown in recent years as commerce has moved online and onto mobile devices and people have become increasingly comfortable using nonbank financial apps and services. Global revenue amounted to $1.9 trillion in 2018, up 6% compared with the previous year, according to McKinsey data.
However, traditional processors face mounting competition from startups as well as big tech companies like Google and Apple. This limits revenue growth potential, leaving companies seeking to cut costs by building scale and retain customers by expanding their product offerings. These trends will likely continue to drive deal making in the sector.
Worldline offers a broad range of merchant services, such as account and card payments, as well as other financial services. Ingenico is a global leader in the devices merchants use for taking payments and has a strong e-commerce solution. It also gives its acquirer a presence in Germany, the Nordics and the U.S. The merger is expected to generate €250 million in savings over four years.
Worldline is paying around 15 times earnings before interest, tax, depreciation and amortization. This is reasonable—U.S. giant Fiserv paid roughly 12 times Ebitda for First Data and FIS paid a massive 23 times for Worldpay. It also helps that Worldline stock, which is funding 81% of the Ingenico takeover, is richly valued on 31 times prospective earnings-per-share, compared with 19 times for the target before the announcement.
In the half decade since it was spun out of European technology giant Atos, Worldline has made eight acquisitions. Its €2.3 billion purchase of SIX Group in 2018 was one of the early moves in the current consolidation round. It may soon be buying again: Chief Executive Gilles Grapinet said Monday’s deal leaves the group “uniquely positioned to further participate” in the deal wave.
Takeover activity is stuttering globally, but Worldline and its peers in the payments industry show no sign of losing their appetite.