The past couple of years have seen a number of acquisitions, mergers, and consolidation in the payments industry. Some of the highlights include:
- In early 2016, Global Payments Inc (GPN 2.80%) acquired Heartland Payment Systems for a little more than $4 billion.
- Visa Inc (NYSE: V) finally acquired its European cousin, Visa Europe, for more than $23 billion in 2016.
- Mastercard Inc (NYSE: MA) has made a number of acquisitions, most notably VocaLink for almost a billion dollars, in recent years to bolster the services it offers its clients.
- Just this past May, First Data Corp (NYSE: FDC) purchased CardConnect Corp for $750 million in an effort to jump-start revenue growth.
It appears further consolidation is coming to the industry. Last year, Vantiv Inc (WP) processed almost 21.2 billion transactions, a 19.9% increase year over year, on its payment processing hardware. That was enough to surpass First Data as the leading merchant acquirer in the United States. Vantiv's processed transactions look to substantially increase again after the company finally made a formal offer to acquire London-based Worldpay Group.
Last month, news leaked that Vantiv intended to acquire Worldpay for approximately $10 billion, but weeks passed before a deal was officially tendered. Investors finally got a chance to see what the final deal will look like when executives from the two companies jointly announced their second-quarter results and took questions from analysts.
The nuts and bolts of the deal
Under terms of the agreement, Vantiv shareholders will own about 57% of the new company and Worldpay shareholders the remaining 43%. The company formed by the acquisition will be renamed "Worldpay" and corporately headquartered in Cincinnati, at Vantiv's current location. The company's international headquarters will be in London, where Worldpay is currently located. Vantiv's offer of approximately $10 billion to Worldpay consists of both shares and cash. Vantiv's CEO Charles Drucker and Worldpay's CEO Phillip Jensen will take on co-CEO duties for the new company.
In the conference call, Drucker said that the unified company will run two platforms for the foreseeable future: one for the United States and one for international business. Client operations that reach into both markets will be given a consolidated view of both platforms.
A worldwide payment processing company
The attraction for investors to such an acquisition is that the new, combined company will have a truly global reach. Vantiv is already one of the largest point-of-sale payment processing companies in the U.S. while Worldpay was one of the first online payment companies. The theory is that together the two will form a payment processing powerhouse with a strong presence in the world's largest and most developed markets, North America (Vantiv) and Europe (Worldpay), and robust capabilities in point-of-sale (Vantiv) and e-commerce (Worldpay) payment solutions. As Vantiv's Drucker said during the conference call:
"Together we create a unique and powerful global e-commerce player, and company will have a scale and a leading global position, enabling us to offer a genuinely worldwide solution, which strengthens across U.S. and international markets. We'll have the ability to support more than 300 different payment methods across 146 countries and 126 currencies. Our integrated technology platform will enable us to offer differentiated products, including data analytics and value-added services. Our combination creates an unrivaled client value proposition. We will be a one-stop shop for global merchants omnicommerce needs, cutting through complexity and enable them to enter markets easily and seamlessly."
The Foolish takeaway
For Vantiv shareholders, the move was undoubtedly necessary. Vantiv's bread-and-butter was providing mass scale payment processing solutions to big box American retailers like Macy's, Kohl's, and TJX Companies' TJ Maxx. While these chains still provide large amounts of payment volume, it is exactly these types of retail establishments that have struggled so mightily in the face of online competition from the likes of Amazon.com. Vantiv has attempted for years to grow its online presence and, while it was starting to show some signs of success, it seemed to always be an uphill battle.
This struggle to grow into the paradigm of modern commerce is now over because Worldpay's addition instantly solves this problem for Vantiv. The new combined entity will have a robust presence across physical and digital commerce and a huge international presence. While the deal was certainly expensive for a company the size of Vantiv (a $10 billion acquisition is huge for a company with a market cap not exceeding $14 billion), that simply shows that the cost of admission to success in today's payments industry is costly for everyone involved.