Interview with Andrew Backen, Equistone Partners, on M&A trends and drivers in the payments space

Tuesday 22 January 2019 09:54 CET | Interview

We have interviewed Andrew Backen from Equistone Partners Europe to find out more about the M&A trends and drivers in the payments space

What is the story behind Equistone Partners Europe and what are the profiles of the companies in which it usually invests?

Equistone is an independent private equity company founded almost 40 years ago. We typically invest between EUR 25 million and EUR 150 million of equity in mid-market businesses, and generate returns by supporting these companies’ growth, both organically and by acquisition. Equistone has offices in France, Germany, Switzerland, and the UK and provides its capital and the deep experience and networks of its local teams to support growing companies.

Since 2002, Equistone has invested in over 150 companies across a diversified range of industry sectors throughout Western Europe. This has included investments in 17 financial services businesses, from which we have consistently generated strong returns. We are able to draw on Equistone’s financial services sector experience to understand the opportunities created by regulatory, market, and technological changes.

The number-one thing we look for when investing in a company is an outstanding management team. We can then help the companies we support by not only investing capital in the business, but also providing access to our extensive network.

Small World is one of Equistone’s first investments in a payments company. What is the rationale for this investment in an international money transfer provider and what are the company’s growth prospects?

This investment is one of the first we have made in the payments space. Our most similar previous investment was Global Blue, in which we invested from 2007 to 2012. Global Blue is a global market leader in traveller-related services, including tax refunds on overseas purchases and dynamic currency conversion. That was a really successful investment; we helped management grow the business significantly, doubling revenues and increasing EBITDA from c. EUR 35 million to c. EUR 97 million, whilst increasingly digitising its processes, before selling it to Silver Lake Partners and Partners Group for EUR 1 billion.

Coming back to Small World Financial Services, we completed the investment in November 2018, acquiring a majority stake as partners alongside the management team led by Nick Day, CEO. Small World is an international remittance business that offers multi-channel, cross-border payment services, enabling money to be sent from consumers in over 30 ‘send’ countries to recipients in 188 ‘receive’ countries, including the currency exchange. Since the company was founded in 2005, it has built a differentiated proprietary payments network that comprises 84 physical branches and 7,000 third-party agents, in partnership with over 450 banks around the world, allowing recipients to collect cash in person from over 250,000 locations globally. As well as physical cash, customers can choose to send money digitally via Small World’s app or website, and the recipients can pick up physical cash or receive money into their bank accounts in over 90 countries.

Small World offers a good-value, transparently priced service and has a well-known and trusted brand. With the company having built a proven platform and already growing faster than the market as a whole, we expect to see Small Word continue to grow its payment volumes in ‘send’ markets including the US, UK, Spain, Central Europe, the Nordics, Brazil, and Africa.

What segments in payments are currently interesting growth markets?

We were attracted to the remittances space by the favourable backdrop of market growth, with the sector consistently growing at 5-6% per annum, driven primarily by global migration trends, so that the value of P2P remittance flows is now estimated to be only slightly less than 1% of global GDP.

The remittances market segments between large incumbents, like Western Union and MoneyGram, and a highly fragmented ’tail’ of small local providers, normally focused on one particular payment corridor or ‘send’ market, for whom growing compliance costs represent a real challenge. Small World is well positioned to consolidate these providers.

In addition, Small World’s digital proposition is growing very quickly and we plan to grow this strongly.

Which were the main drivers of the surge of M&A deals in the payments space in 2018 and what should we expect for 2019?

One key growth driver for the payments sector is the rapid transformation in how consumers are comfortable paying for things, particularly due to the spread of e-commerce driving customers’ appetite for greater functionality, ease of use, speed, reliability, value for money, and security. This rising tide of consumer expectations has created a diverse ecosystem of innovative start-ups and fintech companies, and as they gain traction, they have attracted interest – particularly from strategic acquirers, keen to capture this innovation, but also financial sponsors such as Equistone.

Scale is critically important to many areas of payments, so the need to diversify and grow geographically and to realise economies of scale is another driver of consolidation. This is particularly true in the remittances space, where the growing costs of ever more sophisticated anti-money-laundering regulation and other compliance requirements is felt most keenly by those smaller businesses focused on individual markets or corridors. M&A is therefore a tool through which a larger acquirer, such as a Small World, can spur further growth.

While there are some question marks over the global economy, including around Brexit in the UK and continental Europe, we would still expect these factors to continue to drive M&A in 2019.

About Andrew Backen

Andrew Backen is a Partner at Equistone Partners Europe, having joined the firm from PwC Corporate Finance in 2009. Andrew has a particular focus on the Financial Services sector and has worked on investments including A-Plan Insurance, Apogee, Cabot Financial, FirstAssist, and Small World Financial Services. He graduated from Cambridge University with a degree in Chemical Engineering.

Free Headlines in your E-mail

Every day we send out a free e-mail with the most important headlines of the last 24 hours.

Subscribe now

Keywords: Andrew Backen, Equistone Partners Europe, M&A, M&A trends, payments , remittance, Western Union, Brexit, cross-border payments, money transfers, private equity, Global Blue, Small World, Europe, tax refunds, Silver Lake Partners
Countries: World