This piece appears in the WSJ and discusses a merger of two Italian payments companies, Nexi and SIA. It has been a relatively quiet year for M&A in payments given the pandemic situation. There was the deal in Q1 combining French payments firms Worldline and Ingenico, which occurred before the COVID breakout. One can recall the payments mega-deals of 2019, including Global Payments/TSYS, Fiserv/First Data, and FIS/Worldpay.
So this deal involves two very mature fintechs who are seeking more scale to compete across Europe and beyond, attempting to fend off the big players in the U.S. and Asia.
‘Neither Covid-19 nor the Wirecard fiasco have sapped appetite in Europe to create a payments giant to rival U.S. and Asian peers. The latest merger paves the way for more. The $17.6 billion all-stock tie-up of Italian payments companies Nexi and SIA, announced Monday, wasn’t much of a surprise. Negotiations were publicly discussed soon after Nexi’s initial public offering in April 2019…Payments companies provide the plumbing for offline and online commerce, connecting banks, merchants and their customers. The market continues to grow as consumers get more comfortable shopping online and using cards and smartphones for financial transactions—trends that have only accelerated during the pandemic.’
The author rightly points out the merger logic as well as inherent risks involved with the scaling valuation placed upon expected synergies between entities. The bet here is that there are sufficient differences in assets and client bases that the whole eventually becomes better than the sum of its parts.
‘One risk in these mergers is that the operational results don’t live up to their strategic promise. Combining the systems of two or more companies into a well-functioning whole is no simple task. This is one reason why Dutch payments darling Adyen —Europe’s most valuable fintech company by far—eschews acquisitions. The approach is informed by Chief Executive Pieter van der Does’s tumultuous experience in the first wave of payment company deal-making nearly 15 years ago. Shares of Adyen, which serves digital clients such as eBay and Uber, changes hands for more than four times the earnings multiples of its deal-hungry rivals….Not everyone has the luxury of following Adyen’s example, though. Europe may soon get a cross-border tie-up to test politicians’ desire to create a true regional champion.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group