Payment processors are the acquisition du jour, it seems. In the last fortnight, we have witnessed Vantiv’s successful bid for Worldpay, the purchase of Digital River Payments by Worldline, Ingenico’s takeover of Bambora, and Permira taking a 10 per cent stake in Swedish payments processor Klarna. By the time Paysafe (PAYS) announced it had received a possible takeover offer from a private equity consortium, the market had spent several days acclimatising to a developing trend. Shares in Paysafe rose 8 per cent on the news, a reaction subdued perhaps by prior M&A activity in the payment processing sector. The market response was also obscured by Paysafe’s announcement of its own acquisition: Texas-based Merchants’ Choice Payments Solutions (MCPS).
Paysafe’s potential acquirer is a consortium of funds managed by private equity groups Blackstone and CVC Capital Partners. For Canaccord Genuity analyst Daud Khan, the offer is motivated by the heightened acceleration of consolidation in the sector. Mr Khan does not believe this will be the private equity duo’s only acquisition in the payments area – rather, Paysafe may form the cornerstone of consolidation, with two or three more acquisitions to follow.
An important question is whether the terms of the offer will satisfy enough shareholders for the deal to complete. While Old Mutual – Paysafe’s largest shareholder, with a stake of around 10 per cent – has already offered its support for a potential deal, other shareholders may not find the terms so attractive. Each shareholder would receive 590p in cash per share, equating to a premium of 34 per cent to Paysafe’s average share price during the six months to the end of June 2017. However, Paysafe's shares have enjoyed a bullish run in recent months, rising 46 per cent since the start of the year. The shares closed at around 540p on the day prior to the offer announcement - just a 9 per cent discount to the takeover price.
Could Paysafe be better off on its own? The bidding consortium would want to sell off Paysafe’s non-core Asia Gateway business to help finance their acquisition. For Mr Khan, based on a valuation of eight times earnings, Asia Gateway could be worth 55p a share. If Paysafe was to sell this business itself, Mr Khan reckons management could drive the group's share price up as high as 650p as a standalone entity, making the 590p offer price look relatively cheap.
There is no certainty about whether a deal will go ahead. However, Paysafe is operating against a dog-eat-dog backdrop of consolidation, demonstrated by its own acquisition of MCPS for $470m (£362m). This should enable it to save money in the US while generating higher returns and enhancing its presence there.
