Fintech M&A zeal causes payments stocks to surge
The stocks of a wide swath of publicly traded payments companies are rising faster than the overall S&P 500 index, potentially fueled by several mega mergers in the first half of 2019.
A number of payments firms — including many that are facing heavy competition, such as Diebold and NCR — are seeing their stocks rise as significant M&A activity in the sector is driving interest. This year’s payments M&A activity was jump-started by the Fiserv $22 billion acquisition of First Data announced in January, followed by the $43 billion FIS-Worldpay deal and most recently the $21.5 billion Global Payments deal for TSYS.
“The payment space is hot because the space is very quickly becoming global, new approaches and offerings such as Paytm in India are emerging and capturing significant share of payment volume, and payments are a scale business so volume matters,” stated Thad Peterson, senior analyst at Aite Group.
While the overall stock market has been performing quite well in 2019 as indicated by the 12% growth (between December 31, 2018 and May 28, 2019) of the S&P 500, a stock market index based on the market capitalization of 500 publicly traded large companies, it pales in comparison to the rise of stocks of many companies in the payments sector.
Diebold shares are up over 280% and NCR shares are up almost 35% since December 31, 2018, for example. Paysign, USA Technologies, Payment Data Systems and others also saw sharp rises in their stock values.
The capital markets’ expectation that more large M&A deals in the payments sector could be forthcoming is a potential driver for such a broad-based premium being placed on payment company stocks. However, it’s also a possible realization of the important role that payment technologies play in commerce.
“Companies are increasingly seeing payments as a strategic tool to enhance the user/customer experience and support omnichannel, both critical factors in delivering a competitive offering to the market,” noted Peterson.
When Canadian payments company Nuvei bid $889 million to acquire U.K.-based SafeCharge, it represented a 25% premium over SafeCharge’s last trading stock price. Not only was it a premium over the current trading price, the offer — which SafeCharge accepted — represented a 56% premium to the stock’s six month volume weighted average, according to a regulatory filing.
“We’re at an interesting inflection point in the industry – new payment opportunities, from point of initiation to the very rails they run over are shifting,” commented Gareth Lodge, a senior analyst with Celent.
This shift occurring has many companies scrambling and willing to pay a premium over what could potentially be an overvalued asset just in a bid to stay relevant in the payments sector.
The first signs of an industry consolidation wave began last year when Verifone was taken private by Francisco Partners for $3.4 billion, PayPal acquired iZettle for $2.2 billion and Natixis SA made a $4.6 billion unsolicited offer for French terminal maker Ingenico.
These prices pale in comparison to the values of several deals announced just in the first half of 2019.
“These companies involved in the mega mergers are among the largest established payment firms that have to respond to disruptive industry forces, such as fintechs, entering the payments landscape,” noted Raymond Pucci, director of merchant services at Mercator Advisory Group.