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Payment Technologies Seeing A Flurry Of M&A Activity

Payment Technologies Seeing A Flurry of M&A Activity

Payment services like PayPal, Square and Venmo have revolutionized the way we pay for goods and services, allowing retailers to conduct business seamlessly both online and in-person. The payment industry overall has taken a definitive turn away from cash in recent years, with retailers moving to solutions that support an omnichannel model, and investors have responded accordingly.

 

Venture capitalists have jumped head-long into the $1.9 trillion dollar payments and processing industry, and have been rewarded handsomely with billions of dollars in VC funding. Nearly $18.5 billion was invested in the sector in 2018, a 500% increase from 2017. That trend has, in turn, resulted in a flurry of M&A activity, with little sign of slowing down.

 

Over the past 5 years, there’s been an average of around 250 deals per year in the payment sector. Last week, Global Payments and Total System Services became the latest payment technology companies to strike a deal, agreeing to a multibillion-dollar merger worth roughly $21.5 billion. Global Payments, originally the National Data Corporation, has been in the payment services industry for over 50 years. The acquisition of Total System Services follows the company’s strategy of building a more software-driven business.

 

“This accelerates the strategy we’ve had for the last couple of years to grow in the most attractive markets with a leading international payments business, a leading e-commerce and omnichannel business, and exposure to the fastest-growth geographies,” Global Payments Chief Executive Jeff Sloan said in a recent interview with MarketWatch.

 

Combining the two companies gives them some scale to stay competitive as technology driven juggernauts continue to grow by scooping up mid-size players. Similarly-sized payment processors First Data and WorldPay were both scooped up in acquisitions earlier this year by Fiserv and Fidelity, respectively. PayPal has also been exploring continued M&A to grow its global footprint, and is flush with cash to do so.

 

In private equity, firms understand the key role these payment technology companies play in the rapidly growing world of online retail. For many, these young payment tech companies represent a bit of a shift from the norm of buying and fixing more established businesses. But PE firms are seeing the trend toward consolidation and many have looked to capitalize.

 

“Regulation and technology are driving marketplace change and lowering barriers to entry and creating more competition. It has never been easier to enter and build scale in payments,” says Jeff Paduch, managing director at Advent International. “We are only halfway through a consolidation in the industry that will take years to play out.”

 

What do you think about investing in payment platform companies? Does the rapid movement in the sector make them a smart investment, or are more established businesses a better use of your investment dollars? We’d love to know what you think. Sound off on social media now and join the conversation.

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