Financial Institutions M&A: Sector trends - June 2019: Payments

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White & Case LLP Financial institutions M&A sector trends: payments — H1 2019 and outlook for H2 2019

CURRENT MARKET

  • Consistent, very high activity levels

WE ARE SEEING

  • Demand from keen investors:
    • Trade consolidators—seeking scale, integrated offerings and complementary bolt-ons
    • Financial sponsors—seeking buy-and-build opportunities
    • Established banks—re-entry into the payments arena (e.g., BBVA, Bankia, RBS, etc.)
  • New market entrants, including 'data giants' expanding capabilities (e.g., Facebook's launch of WhatsApp payments)
  • Scrutiny of market foreclosure impact of deals (e.g., Visa/Earthport, Fiserv/First Data Corp, PayPal/ iZettle, etc.)

KEY DRIVERS

  • High cash flow and asset/regulatory capital-light business models continue to attract financial sponsors—Advent International tops the leader board with c. 30 deals
  • Market consolidation:
    • Building scale and geographical reach (e.g., card processors seeking merchant processing capabilities, creating integrated merchant processing platforms, etc.)
    • Acquiring bolt-on capabilities (e.g., point-of-sale finance)
  • Acquiring new technology:
    • Processing efficiency—lowering operating costs
    • Product differentiation—response to rising customer expectations on usage experience and instant transactions
    • Advanced data analytics—unlock potential of customer data
  • Fending off competition from:
    • New entrants/Fintechs—supercharged by PSD2
    • Banks—re-entrants, with deep pockets and network leverage to scale rapidly

TRENDS TO WATCH

  • Fewer global but fully integrated service providers, combining payments infrastructure and lending capabilities (e.g., Paypal, FIS, Fiserv, Square, etc.)
  • Government intervention in M&A to preserve the sanctity of regional payments infrastructure (e.g., Deutsche Bundesbank's support for a pan-European platform)

OUR M&A FORECAST

Very high levels of M&A activity to continue, notwithstanding high asset valuations. Investor confidence fuelled by growing consumer demand for mobile payments—growth is expected at a rate of 33% p.a. between 2019 and 2026.

Other financial services—Publicly reported deals & situations

High appetite and deep pockets

In Q4 2018, payments M&A registered the fastest quarter-on-quarter growth across the financial services sector*

Mobile Payments Market is expected to grow at an annual rate of 33% between 2019 and 2026, reaching US$457 billion by 2026**

In 2018, approximately 50% of UK adults used mobile banking and 1 in 10 now chooses to live a near-cashless life***

Private equity:

  • Brightly Ventures and Luminar Ventures: Participation in successful €1.2 million Seed funding round for Open Payments Europe (May 2019)
  • Stripes: Participation in successful US$56 million Series B funding round for Pleo (May 2019)
  • SoftBank: Acquisition of €900 million in bonds, convertible into 5.6% of equity in Wirecard (April 2019)
  • Adams Street Partners and Salesforce Ventures: Participation in successful £75 million Series E funding round for GoCardless (February 2019)
  • Ant Financial: Acquisition of WorldFirst (February 2019)
  • AnaCap: Heidelberger Payment's acquisition of Universum Inkasso (January 2019)

Banks:

  • Allied Irish Banks: JV with First Data Corp. for acquisition of Payzone (April 2019)
  • TBC Bank: Acquisition of LLC Inspired/Payme (April 2019)

Governments:

  • Saudi Arabia: Real-time payments system JV with Vocalink (April 2019)
  • Nemzeti Bank: Launch of domestic commercial banking instant-payment system (January 2019)

Scaling up of market players

Market highlight:

Financial services technology company FIS has joined forces with digital payments platform Worldpay. The US$43 billion acquisition is the biggest deal ever in the international payments sector

Deal highlight:

  • White & Case advised Nets, a market leader in the payments industry, on its acquisition of Dotpay/eCard and strategic alliance with Przelewy24
  • White & Case advised a syndicate of banks including Barclays, J.P. Morgan and Goldman Sachs, as joint global coordinators, and Bank of America, EFGHermes and Numis, as joint bookrunners, on Finablr's £1.2 billion LSE Main Market IPO

IPOs:

  • Finablr: LSE Main Market IPO raised £306 million (May 2019)
  • Nexi: Borsa Italiana IPO raised US$2.3 billion (April 2019)

Mergers:

  • BPay & Pingit: Merger (March 2019)
  • Nets & Concardis Payment Group: Merger (January 2019)
  • BS PAYONE & Ingenico Group: Merger (January 2019)

Acquisitions:

  • PayU: Acquisition of Iyzico (June 2019)
  • Nuvei: Acquisition of SafeCharge (May 2019)
  • EML Payments: Acquisition of Flex-e-Card (May 2019)
  • First Data Corp.: Acquisition of Payzone, through JV with Allied Irish Banks (April 2019)
  • Stripe: Acquisition of Touchtech Payments (April 2019)
  • Visa: Acquisition of Earthport (April 2019)
  • First Data Corp.: Acquisition of ayCash (March 2019)
  • FIS: Acquisition of Worldpay (March 2019)
  • EVO Payments: Acquisition of Way2Pay (March 2019)
  • WorldFirst: Acquisition of CurrencyVue (March 2019)
  • ClearCourse: Acquisition of Clear Direct Debit (January 2019)
  • Ingenico: Acquisition of Paymark (January 2019)
  • Nets: Acquisition of Dotpay/eCard (January 2019)

Equity investments:

  • PayPal: Strategic equity investment in Tink (June 2019)
  • Mastercard: Minority equity investment in Polski Standard Płatności/Blik (May 2019)
  • Visa: Minority equity investment in and strategic partnership with Bankable (May 2019)
  • Mastercard: Acquisition of 10% of Automated Banking Services and US$300 million cornerstone equity investment in Network International (March–May 2019)

Vertical integration/point-of sale lending:

  • Mastercard: Acquisition of Vyze (April 2019)
  • Heidelberger Payment: Acquisition of Universum Inkasso (January 2019)
  • Paylate: Acquisition of AmmoPay (January 2019)

JVs:

  • SIA: Blockchain interoperability JV with Quant Network (June 2019)
  • Bankingblocks: Neo "challenger" banking solution JV with Pannovate (June 2019)
  • PelicanPay: Online e-commerce merchant payment services JV with Starling Banking (June 2019)
  • Mphasis: Automation, transparency and efficiency solutions JV with Bitfury Group (May 2019)
  • Total Processing: Crypto-payment solution JV with PumaPay (May 2019)
  • Currencycloud: Stock trading payments JV with Evarvest (May 2019)
  • JCB International: European joint licensing agreement with Viva Wallet (May 2019)
  • Prepaid Financial Services: UK smartwatch payments JV with Garmin Pay (May 2019)
  • Banking Circle: Cross-border travel payments JV with Ixaris (April 2019)
  • Tink: Data-driven payment solution JV with Mash (April 2019)
  • Visa: DLT-based international corporate payments platform JV with FIS (April 2019)
  • Alipay: Chinese tourism JV with Barclaycard (March 2019)
  • Nets: Establishment of strategic alliance with Przelewy24 (February 2019)

New licences/territories/ business lines:

  • Swift: Testing of real-time cross-border payments through Eurosystem's Target Instant Payment Settlement (May 2019)
  • Stripe: Launch of Stripe Billing in Europe (April 2019)
  • Visa: Launch of Visa Next digital payment platform (April 2019)
  • J.P. Morgan: Launch of Sepa Instant in Europe (April 2019)
  • Alipay: Securing of Luxembourg e-money licence (January 2019)

New entrants

Deal highlight:

  • White & Case advised Emirates Telecommunications Corporation on its joint venture with Noor Bank to establish a state-of-the-art dirhamdenominated payment wallet business
  • White & Case advised Pollinate International in connection with its partnership with RBS to create NatWest Tyl, a new, innovative solution for merchant acquiring

Launch of new operators/ products:

  • CellPoint Mobile: Successful £11 million funding round led by Toscafund Asset Management (June 2019)
  • Bill.com: Launch of Intelligent Business Payments Platform (May 2019)
  • CULedger: Launch of CU Pay (May 2019)
  • Facebook: Launch of payments service through WhatsApp (May 2019)
  • ACI Worldwide: Launch of UP Real-Time Payments solution (May 2019)
  • Thunes: Successful US$10 million Series A funding round, led by GGV Capital (May 2019)
  • Checkout.com: Successful US$230 million Series A funding round, led by Insight Partners and DST Global (May 2019)
  • Paysend: Launch of Paysend Link, enabling cross-border payments using mobile numbers (May 2019)
  • Billon Solutions: Securing e-money licence from Polish Financial Supervision Authority (April 2019)
  • Resolve: Launch of automated B2B eCommerce financing solution platform (April 2019)

Banks re-join the foray:

  • BBVA: Launch of global mobile payment platform (May 2019)
  • Collector: Online bank payments JV with Trustly (May 2019)
  • Bankia: Waiap strategic partnership with Sipay (May 2019)
  • RBS: NatWest Tyl JV with Pollinate International (May 2019)
  • Noor Bank: Dirham-denominated payment wallet JV with Emirates Telecommunications Corporation (January 2019)

Brexit

  • TransferWise (Belgium): Brexit Application for Belgian money-transfer licence (January 2019)

Regulatory intervention

  • Deutsche Bundesbank (Germany): Support for a pan-European mobile payments platform to compete with American and Chinese BigTech (April 2019)

[View source.]

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