While not garnering much coverage in the mainstream business press, the following Seeking Alpha commentary (by Stephen Simpson) shines light on the pending Global Payments acquisition of Heartland Payment Systems within the somewhat opaque world of merchant acquiring and card processing. These two companies will generate a combined $5+ Billion in annual sales through their global operations in several vertical markets and multi-faceted portfolio offerings.
The companies announced a merger agreement (after a period of speculation that Heartland was in play) on December 15, 2015, with Global Payments announcing that it was paying $100 per Heartland share with a mix of cash and stock.
Those synergies will be interesting to watch. For starters, taking costs out of Heartland could be complicated by the unusual commission model that Heartland uses, and if Global Payments is too aggressive in changing how Heartland operates there is the risk of greater sales force attrition (meaning that at least some of the deal value walks out the door).
Combining these companies should give GPN the opportunity to sell more of HPY’s POS, payroll, and loyalty/gift solutions to its existing customers and take those Heartland offerings into its OUS customer base. What’s more, Heartland will significant expand GPN’s direct marketing initiatives and give them new exposure to large verticals like restaurants (and other hospitality businesses).
All told, though, it’s a logical deal. Together they will become the sixth-largest player in the acquiring/processing space, though still about half the size of the operations of JPMorgan and Bank of America. Importantly, they will have a very strong presence in the small/medium-sized business category – important because these customers tend to have far less bargaining power than national chains and the business is correspondingly more lucrative
The M&A activity within the merchant acquiring industry will no doubt continue unabated in 2016. Already, in January, TSYS announced their agreement to acquire TransFirst. As suggested by the Seeking Alpha commentary, interested buyers could very well be the big banks and other financial institutions. Given that volume and scale are key success factors to leverage global market opportunities, we will not be waiting too long for the next deal to be announced.
Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group
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