Corestar Partners participated in the 4th annual PSE Merchant Acquiring Conference in London on 27 November 2014. It was attended by over a hundred senior payments professionals from across the payments landscape. PSE Consulting focused on the emerging role of mobile payments, on latest developments in the merchant acquiring space, as well as the recent regulatory announcements on interchange.
Milan Bartik, Managing Partner of Corestar Partners, elaborated on the role of private equity in the payment services space. Increasing private equity activity in the sector is underpinned by recent financial sponsor backed transactions, such as the acquisition of Digital River by Siris Capital, the sale of Euroline to Nordic Capital, the acquisition of nets by Advent International and Bain Capital, as well as the acquisition of Skrill by CVC, etc.
Key takeaways of the presentation were:
- The payment services industry continues to be of high interest to financial sponsors, as payment services businesses typically meet most investment criteria of private equity funds: They generally are active in non-cyclical markets with solid growth outlook, recession resilient (4% annual non-cash volume growth even in Europe during last crisis in 2008/2009, while GDP declined by >5% in the same time period), high levels of cash conversion (+20% compared to the S&P 500 Index), and a diversified and sticky customer base.
- Payment services assets generally offer private equity investors attractive growth profiles (both organically, as well as via M&A driven growth strategies), sometimes room for operational improvement, and most importantly, a full range of exit options.
- Financial sponsors have been very successful at exiting payment assets in the past. Exit options included
- Trade sales (i.e. sale of TNS Payment Gateway Services Business to DataCash/MasterCard by Siris Group, sale of Global Collect to Ingenico by Welsh, Carson, sale of Ogone to Ingenico by Summit Partners)
- Secondary / Tertiary buyouts (i.e. sale of Global Collect to Welsh, Carson by General Atlantic, sale of Global Collect to General Atlantic by Waterland)
- IPOs (i.e. Evertec)
- Financial sponsor interest continues to be high, especially financial sponsors with sector expertise and proven track record will continue to play a crucial role in payment services M&A. However, prices are currently very high, reflecting the infrastructure-like nature of the assets.