Digital Transactions - November 2014 - (Page 22)
November 2014 digitaltransactions
Behind the Acquirers'
Five leading U.S. merchant processors have spent more than
$5.4 billion buying other companies in the past two years. New tech
and new channels have a lot to do with the shopping frenzy.
ime was, when a merchant processor set out on the acquisition
trail, it usually was hunting for
an independent sales organization or
other processor that would bring it
scale-more accounts and more transactions to process that would lower
its unit costs and leverage its fixed
capital investment. But the merchantacquiring industry has consolidated
so much that there are now far fewer
small fry left in the pond for the
bulked-up fish to swallow.
"The stuff being available in the
traditional realm, there isn't that much
remaining out there," says paymentprocessing consultant Eric Grover,
principal of Minden, Nev.-based
Instead, these recent acquisitions
and those in the near future are likely
to reflect the buying companies' desire
to obtain special technology, business
relationships, and distribution channels
that they didn't have before. In other
words, companies that can bring new
products and services complementary
to a buyer's merchant-processing base.
Digital Transactions analyzed
recent U.S. acquisitions by five
leading merchant processors-First
Data Corp., Total System Services Inc.
(TSYS), Vantiv Inc., Global Payments
Inc., and Heartland Payment Systems
Inc. The group has spent more than
$5.4 billion in 18 publicly announced
domestic deals since 2012 (chart, page
24). Only a few of the acquisitions
could be described as old-fashioned
scale plays that simply added more
payment card merchant accounts to
the buyer's portfolio.
The current leader in the merger-andacquisition race is Vantiv, a publicly
traded firm that started its corporate
life as the payment-processing division of Cincinnati-based Fifth Third
Bancorp. Vantiv since 2012 has made
three acquisitions worth $2.17 billion,
including its $1.65 billion buyout of
Mercury Payment Systems in June.
Vantiv's acquisition strategy reflects
much of the current M&A thinking.
"Honestly, the unifying thread is
the tremendous and rapid revolution
we're seeing in the payments industry
toward technology-enabled payments,"
says Adam Coyle, executive vice president of acquisitions and strategy.
Durango, Colo.-based Mercury
is considered the pioneer in so-called
integrated payments-an ISO that
works with software developers and
dealers to integrate payments functions
* digitaltransactions * November 2014
into the partners' business-management
applications. The idea is to present
merchants with an offering beyond
increasingly commoditized and pricedriven straight merchant processing.
With Mercury's proven model
in mind-its distributors include
600 software developers and 2,400
value-added resellers (VARs)-other
merchant processors are looking for
partners that offer applications for
everything from marketing to inventory and personnel management.
"They're naturally complementary to a merchant-acquiring business," says Grover.
Integrated payments aren't the
only thing driving processor acquisitions lately, however. Mobile-payments platforms are targets. Some big
acquirers are eyeing niches dominated
by small players and ripe for rollup.
Other processors have moved into
substantially different corners of the
payments industry than they were in
before-witness TSYS's $1.4 billion
acquisition of prepaid card program
manager NetSpend Holdings Inc.
Foreign countries where electronic
payments are relatively underdeveloped hold the most acquisition opportunities in the coming years, according
to many payments executives. With
the exception of Heartland, all the
companies discussed here pursue international acquisitions, most recently
Global Payments with its September
announcement that it had a deal to buy
Table of Contents for the Digital Edition of Digital Transactions - November 2014
The Gimlet Eye: Don't Write off POS Terminals Just Yet
Trends & Tactiics
Acquiring: POS Terminals Have a Future, And It's Looking Good
Strategies: Behind the Acquirers' M&A Spree
Cover Story: The 10 Most Pressing Issues in E-Payments
Acquiring: Should They Stay Or Should They Go?
Digital Currency: Here Come the Bitcoin ATMs
Endpoint: Why It's Different With Apple Pay
Digital Transactions - November 2014