While many of today's best fintech companies garner their fair share of press, a precious few are still under most investors' radars. Take Global Payments Inc (NYSE:GPN), for instance. This payment processing company recently reported stellar second quarter results, something that has become a familiar happening for the few who follow the company.
In the quarter, the company's adjusted net revenue increased 18.4% year-over-year to $847.9 million and adjusted earnings per share increased 24% year-over-year to $0.94. In another familiar event for shareholders, the company also raised its full year guidance for 2017: Adjusted net revenue is now expected to increase 20% to 22% and adjusted EPS is being projected to increase 21% to 25% over 2016's numbers.
What should really get the attention of investors, though, is that on the same day the company announced its second quarter earnings results, it also announced it would be acquiring the communities and sports divisions of ACTIVE Network from the private equity firm, Vista Equity Partners.
|Global Payments' Metrics||2017 Q2||2016 Q2||Change|
|Adjusted net revenue||$847.9M||$716.3M||+18.4%|
|Adjusted Operating Margin||29.2%||27.9%||+130 bps|
Investors still heart(land) Global Payments' last acquisition
While every billion dollar plus acquisition is important news for virtually any company, it might be especially so for Global Payments. For starters, the company only sports a market cap of $14.8 billion, making any billion dollar deal fairly substantive. But, more important is Global Payments' recent history with acquisitions. In December 2015, the company announced its intentions to acquire Heartland Payments for $4.3 billion and completed the deal by the following April.
Since the acquisition, the payment processing company has repeatedly beat revenue and earnings estimates and raised guidance. Indeed, in Global Payments' first quarter conference call this year, CFO Cameron Bready was still singing praises of the merger, saying the company's margin expansion was being chiefly driven by "the realization of expense synergies from the Heartland merger."
Predictably, the stock price has followed the company's performance and been on a tear. In the past 18 months the stock price has risen 86%, thumping the market in the process. More recently, the stock has increased nearly 41% year-to-date. Not bad for a company most investors have never heard of!
Global Payments is an ACTIVE grower
Although Global Payments' latest deal with ACTIVE Network isn't as big as the Heartland Payments' acquisition, it could still meaningfully drive growth forward. Net of a few tax assets involved, the deal is worth $1 billion which will be paid to Vista in equal parts cash and stock.
ACTIVE Network produces software management and mobile app solutions for things like event planning (e.g. marathon races, mud runs, etc.), youth camps, and sports leagues and clubs. According to its website, over 36,000 organizers currently use its event and activity management software. Some of its more high-profile customers include the YMCA, IronMan, and several state park departments. In Global Payments' conference call transcript, provided by S&P Capital IQ, COO David Mangum had some helpful comments on how to best think of ACTIVE Network's business model and how it will integrate with the company's payments business:
"In terms of the business model, think of ACTIVE as the exclusive interface between consumers and the folks who manage events in the communities and the health and fitness industry. So let me drill into that just a little bit. In communities, that means we're the system of record and we're the engagement engine as well as the registration and payment engine for parks, kids camps, YMCAs, program registrations, all sorts of payments that all those types of institutions have to actually drive. So being the system of record, we are enterprise-class, in the cloud helping them drive engagement with the consumer, or say with a mother or a father who's registering a kid for that camp or someone who is actually joining and becoming a member of the YMCA. And the payment is central to that transaction, right? The payment is actually the registration, so think of this as software revenue that's expressed in terms of the fee we charge for the payment and the registration for the interaction with the consumer."
Overall an attrACTIVE acquisition
The bottom line is that there is a lot to like about Global Payments' latest target. Global Payments' management believes the acquisition will create significant verticals for it in a fragmented market because ACTIVE is the largest player in a total addressable market that represents about $60 billion in payment volume, but currently has only about 5% to 7% of the market share. This means there is still room for lots of growth! While the deal isn't expected to close until later this year, management expects it to be immediately accretive to earnings.
Earlier this year, Global Payments launched Xenial, a vertical software management platform targeting restaurants. The platform is designed to tackle everything from menu and order management to customer engagement and data analytics. Now, in one fell swoop, Global Payments will soon be offering another vertical software management platform to another market with its payment solutions integrated into the larger system. Not a bad strategy and one that has paid investors with handsome returns thus far. Something tells me that those attrACTIVE returns are not about to stop anytime soon.