The payments industry continues to undergo a transformative period marked by rapid technological advancements, changing consumer preferences, and ongoing economic turbulence. In this article, we aim to provide insights into the mergers and acquisitions (M&A) landscape within this dynamic sector. We will explore the trends that we have observed in M&A activity in the payments industry, examine the highlights of 2022, and offer our expectations for the remainder of 2023.
Whilst 2021 saw new heights in the payments industry, 2022 was a different story and saw M&A activity significantly drop. The number of deals fell by 14%, whilst the total value of deals fell by 75%(1). These figures are reflective of the reduced appetite from players on both the buy and sell sides of the payments industry. Buyers felt threatened by rising interest rates whilst potential sellers were frighted off by a widespread correction in evaluations.
Despite this, there were some standout deals – involving both financial and strategic investors – that occurred in 2022. Global Payments acquired Evo Payments for USD 4 billion, for example, enabling continued expansion into new European markets. Bottomline Technologies was bought by a private equity firm for USD 2.6 billion in May, before subsequently acquiring Nexus Systems in August. MoneyGram was purchased for USD 1.8 billion by a US-based PE firm. BillTrust was finally acquired in December for USD 1.9 billion, and it has its sights set on making its own acquisitions in the coming months. These are all notable deals in their own rights, but together they did not make amends for the 2022 downturn.
The payments industry has witnessed numerous changes in M&A activity in recent times. In 2021 we witnessed deals of high, and sometimes exaggerated, values and volume. In 2022 we subsequently saw a significant drop in appetite, from both a buy and sell side perspective. In 2023, early indications suggest further changes to M&A activity in the payments industry, a result of wider global economics but also the unique, dynamic nature of the sector.
Certain trends in the payments sector are impacting the deals being made today:
The rise of ‘mega-deals’: Mega-deals, valued at USD 5 billion or more, are here to stay within the payments sector. Once infrequent, these behemoths are now common lexicon. In Q3 2022, whilst no mega-deals occurred, 75% of the overall value of M&A deals was still accounted for by the top 5 deals(1). One needs only to look at Block’s (formerly Square) acquisition of Afterpay in 2021, for USD 29 billion, to realise the wheels of mega-deals have already been set in motion(2). Despite indications that company valuations have somehow normalised, we believe that there will be a few mega deals in 2023. Admittedly, these have not materialised yet but there is plenty of industry talk about ACI changing ownership, PayU and Tietoevry possibly divesting some parts of their payment assets, publicly listed Network International potentially changing ownership, or PayPal considering the sale of Xoom, its money transfer business. These are just a few examples, but we believe the remainder of 2023, and beyond, is primed to encounter some staggering individual M&A deals.
Funding rounds are becoming competitive: On the other end of the spectrum, compared to mega-deals, a battle amongst growing payments companies for investor funding is hotting up. Fintech funding in Q1 2023 dropped by 83% compared to the same period in 2022(3). We believe potential investors are being more diligent now than ever when it comes to identifying the right opportunity. Valuations are not just about customer numbers anymore; it has become much more about revenue generation and profits. Michael Terpin, CEO of Transform Ventures, recently stated that there is a ‘thawing of people wanting to open their checkbooks’. Investment into certain troubled areas, such as Buy Now, Pay Later (BNPL) and crypto, has plummeted – and investors are now cautious of jumping onto the next risky bandwagon. We are seeing safer options, such as B2B and embedded finance vendors, becoming preferential when those checkbooks are opened.
A disturbance in the blockchain force: It’s been a turbulent 12 months for blockchain. For the majority of 2022, blockchain valuations seemed to buckle the trend. In April, blockchain companies saw post-money valuations grow by 91% year-on-year(4). However, a year on, and the total value of blockchain-related funding has since plummeted by 79%(5). Recent news of FTX dissipating, Terra/Luna crumbling, and numerous bankruptcy filings have proved to be enough to fend off many investors and cause a run on many crypto-cosy banks. As a result, deals in the crypto space are taking longer to close and are often being abandoned. One big casualty of this is the failed USD 1.5 billion acquisition of Wyre by Bolt, made worse by news of Wyre shutting down at the start of this year(6). It is not all doom and gloom, however – whilst some might see all of this as an unrecoverable fall from grace for crypto-related companies, we believe these firms have now been brought into alignment with the rest of tech. This is a good sign that M&A activity in the blockchain industry is maturing and may well emerge better off because of recent tribulations.
B2B payments at the helm: At EDC, we are tracking M&A activity in the payments industry, and so far in 2023, we have seen over a quarter of the value of all funding going to B2B payments vendors. This investment sees funders exposing themselves to a lucrative vertical that saw USD 108 trillion of payments made in 2022, with an anticipated 5% annual growth rate.
We have long believed that B2B payments have a lot of room to grow in comparison to consumer payments, in terms of technological advances but also consolidation through M&A activity. Billtrust’s new CEO Sunil Rajasekar recently stated that ‘I do see us doing some more big M&A in the future’ to ‘fulfil the Billtrust vision’(7). Amex recently acquired B2B automation company Nipendo, too. These two are both examples of firms that are heating up M&A activity in the B2B payments space, likely to be a sought-after area in the coming months.
As we progress further into 2023, we foresee M&A activity to continue at a pace in between that of the previous two years. The trends mentioned above are likely to continue and impact M&A deals as well as the funding rounds of many aspiring fintechs. The cloudy apprehensions of investors felt now will pass, but to what extent is yet unknown.
To recap how EDC see the current M&A trends manifesting in the remainder of 2023, we believe that there are a few ‘mega-deals’, yet to reveal themselves, likely to happen this year. At the same time, we anticipate the fight among payments startups for VC funding to remain highly competitive. M&A activity in the blockchain space, whilst at present is a shadow of its former self, has the potential to emerge from 2023 in a much healthier and more mature state compared to the start of the year. Finally, an increasing number of smaller B2B players, such as embedded payment solution providers, can expect to come under the acquisition microscope as larger incumbents look to consolidate and digitise their B2B offerings.
References:
(1) Electronic Payments International
(2) Square buys Afterpay
(3) https://sifted.eu/articles/fintech-funding-q1-2023
(4) Pitchbook data
(5) https://techcrunch.com/2023/03/31/crypto-q1-decline-analysis/?guccounter=1
(6) https://blockworks.co/news/from-1-5-billion-to-0-crypto-payments-platform-wyre-shuts-down
(7) https://www.paymentsdive.com/news/billtrust-plots-growth-payments-b2b-accounts-receivable/640696/
This article was first published in ‘The Global Overview of Payments Providers 2023’, the most recent market overview and analysis of key payment providers in the B2B and B2C commerce payment ecosystem.
Volker is a Director at Edgar, Dunn & Company (EDC) based in the London office and heads the European Acquiring Practice. Volker has provided consulting advice in payments for over 20 years and has developed significant experience in digital financial services from working with banks, merchants, card payment schemes, technology vendors, and regulatory bodies in a variety of different geographies. He has a track record in strategy development and deep expertise in profitability improvement, strategic planning, financial modelling, and benchmarking.
Euan Jones is a Business Analyst at Edgar, Dunn & Company (EDC) based in the London office. Since joining in 2021, Euan has completed a wide variety of consulting projects with EDC’s global client base. These clients include tier 1 banks, card payment schemes, multinational retailers, payment vendors, fintechs, and more. He also is a core member of EDC’s M&A Advisory team and has gained deep knowledge into the latest deals and activities. Prior to joining EDC, Euan gained a Master’s degree in Physics.
Edgar, Dunn & Company (EDC) is an independent global payments consultancy. The company is widely regarded as a trusted adviser, providing a full range of strategy consulting services, expertise, and market insights. EDC expertise includes M&A due diligence, legal and regulatory support across the payment ecosystem, fintech, mobile payments, digitalisation of retail and corporate payments, and financial services.
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