Legacy merchant acquirer ranks continue to shrink, as Vantiv and Worldpay plan to become one. News of this broke early yesterday when Worldpay posted a regulatory announcement, as required by UK law, of interest from two different suitors, JP Morgan Chase and Vantiv, as reported in the following article.
Worldpay Group, the British payment processing company, said on Wednesday that it had agreed in principle to be acquired by Vantiv, an American rival, for 7.7 billion pounds. The transaction, valued at about $10 billion, ranks as one of the most significant in the field since the financial crisis. Payment processing has become increasingly important for financial institutions as more people shop online and move money using cellphones or other digital devices.
Worldpay disclosed on Tuesday that it had received takeover approaches from both Vantiv and JPMorgan Chase, an announcement that sent its shares 23 percent higher. Shortly after the deal was announced on Wednesday, JPMorgan said it did not intend to make a counteroffer. Worldpay, based in London, provides payment processing for mobile, online and in-store transactions in 146 countries and is the largest payment processor in Britain, where it accounts for about 42 percent of all retail transactions.
The company, a so-called merchant acquirer, helps traditional retailers and online businesses to process their payments. Financial technology start-ups like Adyen, Square and Stripe have been seeking to make inroads in this area.
Under the terms of the deal announced on Wednesday, including a dividend, investors would receive £3.85 in cash and shares for each share of Worldpay they own. That would represent a premium of 18.9 percent to Worldpay’s closing price on Monday, before the company announced that it had received multiple approaches about a takeover.
Multiple factors contribute to the significance of this pending deal. One is that the payments processing business relies on increased volume to regularly turn a profit. Unfortunately, for legacy acquirers like Vantiv, much of their business comes from brick-and-mortar stores which are shrinking. So that leaves acquirers to build organically or buy market share with E-commerce sales and international transactions for continued growth. Vantiv’s deal accomplishes just that, and expands it footprint just where they need it. Keep in mind that this deal is at the agreement stage and they may be others looking to make a bid for Worldpay. However, Chase decided to opt out for unknown reasons, so right now it will be up to government regulators to approve the Vantiv-Worldpay deal, which will mean one less legacy acquirer for merchants to consider for their payments processing needs.
Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group
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