Pri­vate eq­uity firms in­vest heav­ily in on­line pay­ment-pro­cess­ing busi­nesses

The Star Early Edition - - INTERNATIONAL - Sarah Syed

PRI­VATE eq­uity firms, sit­ting on record piles of cash, are tar­get­ing a geeky cor­ner of the on­line shop­ping in­dus­try as the next fron­tier in the hunt for re­turns.

Pay­ment-pro­cess­ing com­pa­nies, which make the tech­nol­ogy that en­ables web and mo­bile pur­chases, are get­ting a flurry of in­vest­ments this year as buy­ers look for ways to profit from the shift to on­line spend­ing.

Buy­out firms see the mar­ket as frag­mented and ripe for con­sol­i­da­tion. It’s also a key part of on­line re­tail, an in­dus­try that’s grow­ing rapidly.

Re­tail e-com­merce sales rose 23 per­cent in the past year through June to $2.29 tril­lion, ac­cord­ing to re­searcher EMar­keter Inc. The firm pre­dicts on­line shop­ping will ac­count for more than 16 per­cent of to­tal re­tail sales glob­ally by 2021, hit­ting $4.48 tril­lion.

“Our view is that sta­tus-quo is not an op­tion in pay­ments to­day,” said Jeff Pa­duch, man­ag­ing direc­tor at Ad­vent In­ter­na­tional.

“Reg­u­la­tion and tech­nol­ogy are driv­ing mar­ket­place change, low­er­ing bar­ri­ers to en­try and cre­at­ing more com­pe­ti­tion. It has never been eas­ier to en­ter and build scale in pay­ments.”

Busiest year

Spend­ing on deals for In­ter­net fi­nan­cial ser­vices firms has surged more than seven-fold in the last 12 months and 2017 is al­ready the busiest year for deals in the in­dus­try in more than a decade, ac­cord­ing to data com­piled by Bloomberg.

It isn’t only pri­vate eq­uity firms seek­ing deals. US pay­ment pro­cess­ing firm Van­tiv Inc agreed to ac­quire World­pay Group Plc, an e-com­merce pay­ments com­pany, for about $10.4 bil­lion, the com­pa­nies said in a state­ment yes­ter­day.

In­genico Group SA reached a deal for Bamb­ora AB for 1.5 bil­lion last month, and Global Pay­ments Inc agreed last Thurs­day to buy units of Ac­tive Net­work from Vista Eq­uity Part­ners for $1.2bn in cash and stock.

Pri­vate eq­uity’s in­ter­est in the bur­geon­ing in­dus­try marks a shift for many buy­out shops more ac­cus­tomed to mak­ing money re­vamp­ing staid con­sumer

Spend­ing on deals for in­ter­net fi­nan­cial ser­vices firms has surged seven-fold in the past 12 months

brands than in­vest­ing in in­no­va­tion.

Th­ese firms are sit­ting on record amounts of so-called dry pow­der – money they’ve raised from in­vestors and haven’t de­ployed, thanks to high lev­els of liq­uid­ity and rel­a­tively few at­trac­tive takeover tar­gets.

That’s pushed more of th­ese com­pa­nies to look for new places to earn their re­turns.

“Growth and change in the in­dus­try is be­ing driven by evolv­ing tech­nol­ogy and cus­tomer re­quire­ments,” said Luca Bassi, man­ag­ing direc­tor at Bain Cap­i­tal.

The sec­tor has low bar­ri­ers to en­try which al­lows new “chal­lengers” to en­ter the mar­ket. Pri­vate eq­uity firms can pro­vide strate­gic as­sis­tance and in­vest­ment, he said.

Cash­less fu­ture

Dry pow­der reached $1.4 tril­lion at the end of last year, the high­est level since at least 2007, ac­cord­ing to data from Pre­qin. That num­ber rose to $1.6 tril­lion this month, the al­ter­na­tive as­set data firm said.

Con­sumers are us­ing cash less and less, re­ly­ing in­stead on debit and credit cards and pay­ment de­tails stored on­line, ac­cord­ing to the 2017 World Pay­ments Re­port from Capgem­ini SE and BNP Paribas SA.

Non-cash trans­ac­tions grew 11 per­cent glob­ally from 2014 to 2015, the high­est growth in a decade.

“Mo­bile prox­im­ity” pay­ments from “mo­bile wal­lets” are ex­pected to grow to $53bn in 2019 from $3bn in 2013, ac­cord­ing to the re­port.

The trend will be helped along by changes to reg­u­la­tions that en­cour­age dif­fer­ent pay­ment sys­tems to work to­gether as well as im­prov­ing se­cu­rity. – Bloomberg

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