3 minute read 23 Feb 2021
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Why payments M&A is on the rebound in Q4

Authors
Kai Rövenich

EY Parthenon Financial Services Strategy & Operations Senior Consultant

Payments strategy professional. Artificial intelligence enthusiast. Entrepreneurial mindset.

Florian Seeh

Senior Consultant, Strategy, EY-Parthenon GmbH

Payments and FinTech strategist. Entrepreneur at heart. Wants to make the world a better place.

Contributors
3 minute read 23 Feb 2021

The pandemic continues to have an impact but consumer demand for a more digital experience is driving an increase in deal value and volume.

In brief
  • Q4 2020 M&A in payments rebounded to 60 deals worth US$25.8b.
  • Customer demand around digitized payments is behind many transactions, including the Nets-Nexi mega-merger.
  • Expect cashed-up firms and investors to take advantage of tough economic conditions, buying distressed start-ups as a fast route to payments innovation.  

In the last quarter of 2020, the global payments segment realized 60 transactions, up from 57 in Q3. The deal value surged to US$25.8b in Q4 2020, largely driven by the acquisitions of Nets A/S and SIA S.p.A by Nexi S.p.A.

Payments M&A Q4 at a glance:
  • 60 M&A transactions announced
  • 20 transactions with financial terms disclosed
  • US$25.8b total deal value
Megadeals dominate as consolidation continues

Three large transactions contributed the most value to this quarter’s total deal value:

  • Acquisition of Denmark-based Nets A/S by Italian pay-tech major Nexi S.p.A, with an enterprise value of US$8.6b (equity value of US$7.1b)
  • SIA S.p.A acquired by Nexi S.p.A for an enterprise value of US$5.4b (equity value of US$5.4b)
  • Canada-based Verafin Inc, a developer of fraud detection and anti-money laundering (AML) software, acquired by Nasdaq for an enterprise value of US$2.8b (equity value of US$2.8b)

The theme of payments M&A in 2021 is the realization that consumers want more control over digital payments – companies must deliver or risk obsolescence. The biggest deal of the quarter reflects this, with European payments solutions providers Nets of Denmark and Nexi of Italy negotiating an all-share merger deal worth US$8.6b. The transaction, announced in November 2020, sees the merged companies establish a leading pan-European payments platform with large market shares in the Nordics and Southern Europe. The deal, which includes long-term lock-up commitments by Nets’ current shareholders, creates a one-stop-shop for payments, with expanded capabilities and a diversified geographic reach. It will also enable product and service diversification, and offer customers enhanced exposure to e-commerce.1

M&A market development

Just a month earlier, in October 2020, Nexi also reached an agreement to merge with a local competitor, financial technology firm SIA, which engages mostly in processing and issuing services. The US$5.4b stock deal will create Italy’s largest payments platform, and one of the biggest in Europe, with comprehensive capabilities in both acquiring and issuing services. The transaction is expected to complete by the summer of 2021.2

The theme of payments M&A in 2021 is the realization that consumers want more control over digital payments – companies must deliver, or risk obsolescence.
Kai Rövenich
EY Parthenon Financial Services Strategy & Operations Senior Consultant

The newly merged Nexi platform, including Nets and SIA, assumes Pro-forma revenues of €2.9b (approx. US$3.5b) and €1.5b (approx. US$1.8b) EBITDA on a Pro-forma aggregated basis in FY 2020E, including combined run-rate synergies of €320m (approx. US$383m) in FY 2020E. Former Nexi shareholders, Nets shareholders, and SIA shareholders will hold 48%, 31%, and 21% of the merged company, respectively.3

Nasdaq announced in November it would acquire anti-financial crime software firm Verafin. The US$2.8b all-cash deal – US$2.5b of debt and cash in hand – allows Nasdaq to expand its reach in the regulatory technology market. Verafin’s cloud-based solutions are used by more than 2,000 financial institutions in the US and Canada to detect, investigate and report money laundering and financial fraud. Nasdaq plans to provide these solutions to the 250 banks, exchanges, broker-dealers, buy-side organizations, and regulatory authorities that use its trade surveillance systems. The deal is the organization’s largest since its US$3.8b purchase of Nordic exchange, OMX, in 2008.4

The transaction reflects a trend within banks and financial firms to automate many of their more complex and expensive back-office processes to reduce costs and increase efficiencies.

Median enterprise value multiples
COVID-19 hits valuations

In Q4, the median EBITDA multiple for all disclosed deals year-to-date decreased to 17.6x in 20205 from 21.8x in 2019. Over the same period, the median revenue multiple also decreased from 5.2x in 2019 to 3.8x in 2020. The reduction in multiples may be a direct consequence of the pandemic.

Deal by region and segment

In Q4 2020, deal targets were based in:

  • North America – 35.0%
  • Europe – 35.0%
  • Asia – 3.3%
  • South America – 8.3%
  • Middle East, Africa (MEA) – 10.0%
  • Australia – 8.3%
Targets by region Q4 2020
Targets by segment Q4 2020
M&A outlook

Black swan events, such as the COVID-19 pandemic, create a plethora of M&A opportunities for acquirers sitting on lots of money, eyeing up the significant number of distressed firms ripe for the taking.

In the ongoing rocky economic climate, we expect some well-capitalized firms to leapfrog commercial relationships and partnerships to instead buy smaller, innovative peers.
Florian Seeh
Senior Consultant, Strategy, EY-Parthenon GmbH

In the ongoing rocky economic climate, we expect some well-capitalized firms to leapfrog commercial relationships and partnerships to instead buy smaller, innovative peers. As consumers increasingly expect smoother, digitized payments experiences, those legacy issuers or processors and financial institutions (FIs) that use M&A and partnerships to quickly gain digital capabilities around acquisition, issuance and payments wrapped around both virtual and physical cards will emerge as winners.

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Summary

The impact of the COVID-19 pandemic on payments deal-making remains, but in Q4, M&A rebounded in terms of both value and volume. The demand for a more seamless, digitized customer experience is behind several major transactions and expected to remain a key driver through 2021.

About this article

Authors
Kai Rövenich

EY Parthenon Financial Services Strategy & Operations Senior Consultant

Payments strategy professional. Artificial intelligence enthusiast. Entrepreneurial mindset.

Florian Seeh

Senior Consultant, Strategy, EY-Parthenon GmbH

Payments and FinTech strategist. Entrepreneur at heart. Wants to make the world a better place.

Contributors