This past Tuesday, REPAY (NASDAQ: RPAY), the integrated payments processor based in Atlanta, GA, announced its acquisition of Scottsdale, AZ-based BillingTree from Parthenon Capital for approximately $503M in stock and cash. The transaction adds another data point to an accelerating trend in payments and fintech M&A as traditional payments processing companies seek to retool core services by acquiring proprietary technologies to expand their offering and product suite. More importantly, though, these same payments processors are seeking to change the market’s perception of their companies from credit and debit card payments providers to financial technology centers. They’re very aware, and rightfully so, that the difference in market perception between payments processor and fintech will reward them with higher valuations. Because of this, companies that use the technology of others to push payments transactions, or those who don’t have plans to acquire their own financial technology, ought to take notice: in the game of value creation and multiple expansion, processing payments just isn’t enough. The calculus is simple – fintech good, payments processor bad.
For privately held payments processors and merchant acquirers, it would be wise to closely monitor their larger, publicly traded fintech peers. REPAY’s acquisition of BillingTree is just the latest example in a busy 2021 among micro and mid-cap companies. Nuvei Corporation (TSX: NVEI and NVEI.U), formerly Pivotal Payments, has been extremely active on the financial technology acquisition front. In April, it entered into an agreement to acquire Mazooma Technical Services Inc., a U.S.-focused gaming and sports wagering payment technology provider, for approximately $56 million. iGaming and online betting are two markets that have seen explosive growth in the last 18 months. Nuvei followed up the Mazooma deal with the May acquisition of Simplex, an EU-licensed financial institution whose technology provides the infrastructure to process crypto-to-credit card payments. This is yet another highly strategic fintech play in the burgeoning market of crypto-to-fiat payments. These two acquisitions have helped solidify Nuvei’s position as a true fintech player in the market as evidenced by a pretty good-looking stock chart year-to-date.
Another very large, privately-held payments processor that has been active on the acquisition front is Priority Technology Holdings, Inc. (NASDAQ: PRTH), formerly Priority Payments. The micro-cap “went big” this year when in March it announced its acquisition of Banking-as-a-Service (“BaaS”) platform Finxera. Per the release, “Finxera’s BaaS technology allows for the rapid integration of banking services into business applications to establish and manage bank accounts for the collection, storage, and sending of money”. This is another great example of a highly strategic fintech acquisition moving a payment processing-centric company away from its perceived core offering, and landing it squarely in the realm of financial technology. Finxera is an open banking play – a tremendous growth area in fintech – and its addition to Priority Technology Holding, Inc. was immediately rewarded by the market when the acquisition was announced (see gap-up on PRTH chart on the announcement).
The movement away from payments processor, and towards fintech, to capture multiple expansion and greater value creation is fairly obvious. These recent acquisitions do nothing if only to cement this trend and thesis. From an investment banker’s perspective, I see the recent M&A activity as the continuing evolution of the payments technology industry that started around 2010. Around that time there began an aggressive push by publicly traded payments processors to acquire, invest in, or establish strategic relations with software companies to create fully integrated business management tools for merchants of all types. That still continues today. But for those companies seeking access to the capital markets, and those looking to best position their company for an aggressive exit valuation, the writing is in on the wall: being a payments processor simply isn’t enough. Payments processors with integrated software solutions are surely in a better position. However, for the big pay day, a shift in company identity, and by extension, market perception, to a true financial technology platform – one that owns the technology, is optimal.
– Adam T. Hark, Managing Director, Wellesley Hills Financial, LLC
