Shares of Total System Services (TSS) traded up nearly 10% on Friday following a report that the fintech company has engaged in talks with Global Payments (GPN 0.46%) about a potential merger or joint venture. The report is speculative for now, but Wall Street's initial reaction appears to be that a tie-up between TSS and Global Payments would make sense for both companies.
Bloomberg reported Friday that Total System Services and Global Payments have been in discussions about a possible merger or collaboration. The deal, if it happens, would be the third major merger in the payments sector this year, following Fidelity National Information Services' $34 billion deal for Worldpay and Fiserv's $22 billion purchase of First Data.
The two businesses are complementary. Total System Services ranks as the largest third-party processor for U.S. credit card issuers, while Global Payments is focused on handling card payments for merchants.
The report said that talks are at an early stage and could fall apart, or the two companies could decide they would be better served by forming a joint venture or finding another way to partner without a full-blown merger, according to Bloomberg's sources.
Analysts, like investors, had a favorable initial reaction to the report. Andrew Jeffrey of SunTrust said in a note that the deal makes strategic sense given the consolidation occurring in the payments industry, adding he would be buying into this news.
Brett Huff of Stephens said that while he had thought Global Payments might wait and see how the other deals progress before pulling the trigger on its own merger, a deal could make sense to give the combination greater scale with high-quality assets.
He also thinks that the combination, if announced, could put pressure on businesses including ACI Worldwide (ACIW 2.46%), Bottomline Technologies (EPAY), and USA Technologies (CTLP 1.12%) to find partners.