What: Shares of payment processing company Heartland Payment Systems (NYSE:HPY) jumped on Thursday following a report by Bloomberg that Global Payments (NYSE:GPN) is in talks to buy the company. At 2:40 p.m. Thursday afternoon, Heartland stock was up about 11%, while Global Payments' stock was up 3.5%.
So what: Global Payments currently has a market capitalization of roughly $9.4 billion, about triple the size of Heartland. Heartland is the sixth largest payment processor in the United States, providing services to 250,000 business locations. According to Bloomberg, a deal could be announced before the end of the year, but no final decision has been made.
As online and mobile shopping have grown, shares of payment processing companies have enjoyed exceptional gains. Global Payments stock is up about 70% year to date, while Heartland stock has soared 44%. Any deal for Heartland would come at a steep price, with the stock currently trading at about 75 times trailing-12-month GAAP earnings.
Now what: Buying a stock based on rumors of a possible acquisition is never a good idea, and it's still very possible that the deal falls apart. If the deal does occur, Global Payments will nearly double its annual revenue to about $5 billion, giving the company additional scale that could lead to improved profitability.
Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Heartland Payment Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.