Payment Technology Fundraising and M&A Transactions Already Setting a Record Pace in 2016

Feb 29, 2016

Payment Technology Fundraising and M&A Transactions Already Setting a Record Pace in 2016

Fintech , , 0 Comments

Through early February, announced capital raising and M&A transactions in the payment technology sector have already exceeded $7 billion. If this pace continues, transaction value could exceed the $47 billion in 2015.

The question is: given the volatility in the public equity markets, difficulties in the technology IPO market and macroeconomic concerns, will the transaction activity continue? We think it will.

Historical Payment Technology Transactions: 

Historical Payment Technology Transactions

While publicly traded payment technology companies have have lost 17% of their value since November, the sector has significantly outperformed the broader market over the last five years (see the graph below).

Payment Technology Company Price Performance vs S&P 500:

Note: Payment company index includes ACIW, ADS, DH, EEFT, EPAY, EVTC, FDC, FIS, FISV, FLT, GDOT, GPN, HAWK, MA, PAY, PYPL, TSS, V, VNTV, WDI and WEXNote: Payment company index includes ACIW, ADS, DH, EEFT, EPAY, EVTC, FDC, FIS, FISV, FLT, GDOT, GPN, HAWK, MA, PAY, PYPL, TSS, V, VNTV, WDI and WEX

When put in historical context, payment company valuations still remain high by historical standards – 16.2x average enterprise value to LTM EBITDA in the last year vs an 11.7x average in 2011.

Payment Technology Company EV to LTM EBITDA – Last 5 Years:

Payment Technology Company EV to LTM EBITDA – Last 5 Years

2014 and 2015 were extremely active years in the sector, with transaction values in each year growing more than 4x that of 2013. In fact, both 2014 and 2015 were more active years than even 2007 (prior to the financial crisis) as measured by number of M&A transactions, and if First Data’s leveraged buyout of KKR (the 5th largest LBO in history) is excluded from the 2007 data, 2014 and 2015 M&A value exceeds that of 2007 by more than 65% and 50%, respectively.

We believe that consolidation will continue, driven by the need to adapt to a payments landscape that is rapidly evolving as a result of new technologies and new innovators. The larger acquirers must continue to pursue acquisition opportunities in order to maintain relevance in the rapidly changing payments landscape.

Selected, Notable 2016 M&A Transactions:

Date Acquirer Target Commentary
2/8/16 BluePay Billhighway
  • 3rd acquisition in two years and since TA Associates investment
  • Payment management platform designed for not-for-profits and other member-focused organizations
2/3/16 BlackHawk NimbleCommerce
  • Acquisition of digital promotions company in Blackhawk’s continued efforts to move into the digital space in an effort to remain relevant longer-term
1/26/16 TSYS TransFirst
  • Vista Equity sold TransFirst to TSYS for $2.35 billion in cash
  • TSYS receives a much needed boost in the area of integration with software providers in and around the payment ecosystem (e.g. inventory, scheduling, payroll, CRM, accounting)
  • Vista acquired TransFirst from Welsh Carson Anderson & Stowe in October 2014 for approx. $1.5 billion (reportedly a 4x return for WCAS)

The top 15 acquirers since 2003, listed below, represent a who’s who in the payments sector. While economies of scale continues to drive M&A, there have also been a large number of transactions driven by the need for these larger acquirers to upgrade technology, innovate by acquisition and expand into adjacencies. First Data is a great example given its acquisitions of Clover, Perka, Gyft and Transaction Wireless. Other examples include Paypal’s acquisition of Xoom, Mastercard’s acquisition of Applied Predictive Analytics and Blackhawk’s acquisition of Achievers as well as the 2016 transactions noted in the table above.

Top 15 Most Active Acquirers in Payments Since 2003:

Top 15 Most Active Acquirers in Payments Since 2003

We expect it to be an interesting year. Please reach out if you would like to discuss or if we can be helpful in any way.

 

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