Last year may have been a quiet one for payments mergers and acquisitions, but this year holds more potential for a surge in activity, industry analysts and investors said.
That’s largely because many venture-funded startups that previously put off raising capital may find themselves in need of an exit plan just as strategic acquirers and private equity firms are ready to pounce.
Unprofitable venture-backed companies are burning cash with each month that passes, and “they're either going to need to fundraise more to continue funding operations, or seek out strategic alternatives,” oftentimes M&A, said Eric Kaplan, an investor at San Francisco-based Bessemer Venture Partners.
This year, the industry will reach a point where “a lot of companies” will need to explore strategic alternatives, potentially producing attractive assets for larger payment software companies to buy, Kaplan said.
Additionally, analysts said founders’ valuation expectations are starting to become more reasonable, and interest rates are expected to drop. Regulatory developments, too, could prompt industry consolidation, especially in areas such as buy now, pay later.
BNPL is a saturated payments segment where economic conditions also challenge the business model, said Jordan McKee, research director at data and intelligence firm S&P Global Market Intelligence. “I’m almost surprised that we haven’t seen more (consolidation) in that space to date, but it could just be because companies are keeping (business-to-consumer) opportunities at a distance.”
Potential targets may be found in the public markets as well. Payments software company Flywire, cross-border payments firm Remitly and card-issuing fintech Marqeta could be in buyers’ sights, William Blair analysts wrote in a Jan. 2 note to investor clients. Spokespeople for Remitly and Marqeta declined to comment.
“We believe lower valuations coupled with attractive long-term opportunities will drive continued M&A activity from both private equity and strategics, especially if valuations do not improve,” analysts wrote.
Other smaller-cap companies that could be acquisition targets include e-commerce payments company Payoneer and cross-border payments company Euronet, the William Blair note said. Spokespeople for Flywire, Payoneer and Euronet didn’t respond to requests for comment.
It’s a buyer’s market, but large companies are being strategic as they look to acquire a capability or eliminate a threat.
Payments has “a lot of serial acquirers,” for whom scooping up interesting technologies that support new payment use cases or distribution mediums is core to their business model, said FTV Capital Partner Rob Anderson.
“I think you will see the larger strategics that tend to be serial acquirers start to be more active” over the next 12 to 18 months, extending from their core propositions into growth areas, said Anderson, who’s based in the San Francisco area.
Private equity firms are expected to be on the hunt for targets as well, especially given the potential for more distressed properties.
On Tuesday, card network American Express said it’s selling fraud services company Accertify to tech-focused private equity firm Accel-KKR.
Armed with capital, many PE firms now have “great experience in payments, so they’re more of a strategic buyer than they may have been in the past,” said Sam Wares, director of client success at Omaha, Nebraska-based payments consulting firm The Strawhecker Group.
There hasn’t been as much selling by PE firms as Wares would have thought, based on purchases they made five or so years ago. “I could see there being some trading within the PE-owned payment companies this year, and then at the same time, more activity with newer acquisitions,” he said.
As a pack of floundering businesses seek safety, first movers could get more than the laggards.
The payments industry is also likely to see “a bunch of smaller companies merge with other smaller companies,” predicted Jeremy Jonker, co-founder and managing partner at Bay Area-based Infinity Ventures.
Possible strategic acquirers
Card networks Visa and Mastercard and digital payments pioneer PayPal may also consider acquisitions this year, as they seek to broaden their services.
Visa is likely to continue to be acquisitive, but focus more on international assets given the regulatory scrutiny applied to deals within the U.S., Jonker said. In the past seven months, Visa has acquired Brazilian fintech Pismo and plans to buy a majority stake in Mexico payments processor Prosa.
New PayPal CEO Alex Chriss was behind the acquisition of Mailchimp while at tax software company Intuit. “I’d almost place a bet on PayPal potentially looking to make some acquisitions outside the payments industry, and more in areas like loyalty or marketing,” said McKee, who’s based in the Washington, D.C. area.
So far, Chriss has demonstrated he’s at least interested in selling, with PayPal last October agreeing to sell its returns software business Happy Returns to shipping company UPS for $465 million, just two years after PayPal purchased the outfit.
Many expect Worldpay, once fully spun out from Fidelity National Information Services, to be an active acquirer. Indeed, that’s one of the main reasons FIS sought to spin off the merchant business.
Pursuing a point-of-sale asset could be part of Worldpay’s acquisition strategy, McKee said. “If you think about what Fiserv has with Clover, Worldpay doesn’t have an equivalent,” he said. “So maybe they’re looking at some of the software point-of-sale capabilities out there, like a Lightspeed or a Toast.”
Jonker doesn’t expect much M&A activity from debt-saddled Worldpay, but believes FIS CEO Stephanie Ferris will be aggressive in acquiring assets post-spin-off. Executives at Jacksonville, Florida-based FIS have also said they’re on the hunt for small acquisitions, particularly in the company’s capital markets division.
With more companies at discounted valuations, a strategic and active acquirer, such as Fiserv, is likely considering possibilities. The payment processor recently announced the hiring of an enterprise growth officer who will focus on M&A.
Fiserv seems to lack a specific embedded payments offering to sell to software platforms, McKee said, whereas rival FIS acquired Payrix in 2022. Finix, Tilled and Infinicept could all be potential targets in that realm, McKee said. “There’s a number of startups in that space still that are likely looking for an exit,” he said.
Payabli co-CEO Joseph Elias Phillips said his company, which offers a payment platform for software companies, is healthy and not looking to be acquired. But the startup has fielded “a lot” of acquisition interest from larger companies recently, said Phillips, who’s also Miami-based Payabli’s co-founder.
Jonker also mentioned business payments company Bill and Canadian firm Nuvei as likely buyers in 2024. The year could also see banks “wake up” and use their balance sheets to acquire innovative technologies, he said.
Spokespeople for Lightspeed Commerce, Toast, Finix, Tilled and Infinicept didn’t immediately respond to requests for comment.