In October 2015, Worldpay floated on the London Stock Exchange, with an opening market capitalisation of roughly £4.8bn. Less than two years later, the payments technology group received a £9.3bn takeover offer from US payments peer Vantiv. The deal completed in January 2018, resulting in an enlarged company with a primary listing in New York and a secondary listing in London. The reincarnated behemoth – still known as Worldpay – now processes 40bn transactions each year.
Then, just this month, Worldpay (US:WP; UK:WPY) revealed it had charmed another stateside suitor: financial services technology giant FIS (US:FIS). The pair’s "definitive merger agreement" values Worldpay at approximately $43bn (£33bn) – including its debt – which FIS expects to refinance. Worldpay shareholders will own around 47 per cent of the amalgamated group upon completion, which is anticipated in the second half of 2019. This time, it will retain the name ‘FIS’, and be headquartered in Florida.
Scale is key
The tie-up between FIS and Worldpay is still subject to regulatory and shareholder approval. But if all goes to plan, it will mark the fourth time in under a decade that the latter has changed hands.
The financial benefits are clear to see. On its own, Worldpay reported net revenues of $3.92bn in 2018. On a pro-forma basis (assuming it had joined forces with FIS already), sales would have reached a whopping $12.3bn. Moreover, $700m in cash-profit synergies are expected over the next three years. And for broker RBC Capital Markets, "the combination puts the companies in rarefied air relative to peers when it comes to an integrated global solutions set".
"Scale matters in our rapidly changing industry," explains Gary Norcross chairman, chief executive and president of FIS. A neat precis – although one that has not, ostensibly, passed other business-leaders by. While Worldpay currently sits atop the deal-making valuation scale, it operates against a backdrop of increasing competition – and consolidation.
Flurry of transactions
Transactional activity in the payments space shows no signs of slowing down. To name but three examples, financial services technology giant Fiserv (US:FISV) announced a $22bn all-stock combination with payments specialist First Data (US:FDC) in January 2019. Paysafe – formerly listed on London’s Alternative Investment Market (Aim) – was bought by BlackRock and CVC in 2017. And Aim-traded international payments specialist Earthport (EPO) – a relative minnow – is currently recommending a £247m takeover bid from Visa International (US:V). Mastercard’s (US:MA) competing offer lapsed earlier in March.
London is also playing host to some new listings. On 21 March 2019, Dubai-based Network International confirmed its intention to join the main market. It depicts itself as "the only pan-regional provider of digital payment solutions at scale" in the Middle East and Africa, "with presence across the entire payments value chain". The shares should be admitted to trading some time in April. Notably, its incoming chairman is Ron Kalifa – a former chief executive of Worldpay, and still an executive director there. Network International has also reached an agreement for Mastercard to make a $300m cornerstone investment in its planned IPO, and to enter a partnership to "support and accelerate the development of electronic payments in Africa and the Middle East".
Elsewhere, Nexi plans to join Italy’s exchange in April.
Going cashless
Once upon a time, payments infrastructure constituted unseen wiring – simply facilitating the transmission of money from one party to another. However, with the rise of e-commerce and the multiplication of mobile devices around the world, our usage of cash is diminishing. In turn, digital payments has become an industry unto itself, underpinned by innovation in technology. And everyone seemingly wants a piece of the action.
According to the 'World Payments Report 2018' – produced by Capgemini and BNP Paribas – non-cash transaction volumes enjoyed a compound annual growth rate (CAGR) of 9.8 per cent between 2012-16, reaching 483bn in 2016. The report estimates that the number of cashless transactions will rise at an even faster rate of 12.7 per cent from 2016-21.
Emerging markets are also "on track to overtake mature markets as a whole by 2021", having collectively bypassed North America in 2016 in terms of cashless transaction volumes – perhaps giving a sense of where payments organisations may look for growth in future.
Is regulation helping or hindering?
The migration of so many elements of our lives to the online realm has clearly played a role in the ascent of the digital payments market. But regulation is also seemingly spurring the industry onwards – albeit, perhaps, in response to such behavioural shifts.
In January 2018, the European Union (EU) introduced its Second Payments Services Directive (PSD2), striving to make "international payments (within the EU) as easy, efficient and secure as payments within a single country", while also opening payment markets "to new entrants leading to more competition, greater choice and better prices for consumers".
In the UK, the 'Open Banking' initiative – overseen by the Competition and Markets Authority (CMA) – compels the country's nine largest banks to let the drawbridge down on customers’ payments data. With our permission – fintech companies and other regulated online businesses can access our accounts.
The advantages of such change could be plentiful: tech-savvy and younger companies are unfettered by limited access to client information. Meanwhile, incumbent banks are challenged to innovate – perhaps by collaborating with newer market entrants. Ultimately, the customer experience should improve.
On the other hand, in September 2018 US colossus PayPal (US:PYPL) completed an acquisition of Sweden-based iZettle for around $2.2bn, aimed at enhancing the former’s "strong set of products and services for small businesses". But that hasn't stopped the CMA from thoroughly investigating the deal – something it is permitted to do up to four months after the deal is made public or completes, whichever is later.
The UK’s Payment Systems Regulator is also conducting a market review into card-acquiring services – the services required for businesses to accept card payments – to ensure this is "working for businesses and ultimately consumers".
The UK opportunity
There remain various listed payments specialists in the UK, and while there's no guarantee these companies will receive similar advances, or any takeover attention at all, it's still likely to be an industry worth watching.
SafeCharge (SCH) offers services ranging from card-acquiring to payment processing and check-out. It initially provided solutions for the regulated gaming and financial services industries, but has diversified into new industries and geographies. It is currently 68 per cent owned by Teddy Sagi (via Northenstar Investments) – founder of gaming software group Playtech (PTEC).
Eckoh (ECK) also provides secure payments products and services. No bad thing, at a time when data privacy is front of mind thanks to the launch of the EU’s new rules last May (GDPR). Meanwhile, FairFX (FFX) provides international payment services to the retail and corporate arenas of the UK market – which are, together, estimated to be worth £60bn a year.
