3 minute read 2 Aug 2019
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How payment processors can capture M&A deal value amid disruption

Authors

Charlie Alexander

EY Global Transaction Advisory Services Leader – Banking Capital Markets Sector

Experienced transaction leader across the Banking and Asset Management sectors. Strong believer in building long-term relationships by doing the right thing. Travel and sports fan. Father of three.

Brian Salsberg

EY Global Buy and Integrate Leader

Passionate acquisition and merger integration leader and aficionado of all things deal-related. Global citizen. World traveler. Husband. Father of two.

3 minute read 2 Aug 2019

Payments processing leaders need a thorough M&A integration playbook to capture deal value to keep up with the speed of digital innovation.

The payments sector is growing quickly on a wave of disruptive technology and changing consumer behavior. Many established businesses in the sector are turning to acquisition strategies in search of achievable – and sustainable – synergies to defend their territory.

With so much M&A activity and high prices in the payments sector, how can you expand the return on investment? Buyers should look for increased synergy opportunities without losing confidence in their initial synergy projections.

Define synergy objectives before deal close

  • Quantify your deal synergies early and identify potential hurdles. It’s not just about technology or a new market segment. Buyers need to know how sales teams, processors, and other merchant relationships will be integrated into the company and whether they will create new synergies or risk destroying value.

  • Understand which synergies are more achievable than others. Revenue synergies require pro forma planning to exploit a newly acquired market segment, cross-sell one set of products and services across companies and push through higher prices. Deals should offer seamless methods to pay and connect across physical, internet and mobile channels.

  • Assess your ability to achieve projected synergies. Engage each functional area from the buyer’s team to determine the cost, complexity and risks to achieve and sustain planned synergies. For instance, transitioning merchant acquirer portfolios requires decisions on target systems, development work to account for gaps in functionality or residual payment attributes, and cross-training of sale and customer service teams.

  • Set up a synergy tracking model. Understand synergy dependencies such as transition service agreements (TSA) exits or staff training and ensure those are managed as part of the overall integration plan. Set specific metrics and goals associated with hard-to-track synergies.

Build a talent retention strategy

  • Establish a dedicated change management program and joint communications structure to better engage with the two organizations around common goals. Deliver a combined organizational structure as early as possible, laying out reporting lines, roles and responsibilities, and rationale.
  • Spend the time to understand the cultural differences between the two companies. Create an inclusive environment by discussing and addressing the key differences openly.
  • Strive to lessen or expedite any corporate processes, such as capital investment approvals or steering committee decisions. Avoid any that may be barriers to progress and sow ill will with new employees.

Avoid predictable pitfalls

  • Don’t underestimate the complexity of your integration. The most common driver of complexity is integration of technology and subsequent conversion of merchant accounts.
  • Include long-term identity and branding in the deal conversation. Branding strategy and approach should be developed early in the deal cycle to leverage any newly acquired brands and determine how they will fit within the buyer’s branding strategy.
  • Establish a boarding plan for new merchants. Ensure that the sales partners understand the new platforms they are selling and that commission systems account for cross-platform sales. Customer service and other sales support systems must provide one-stop and up-to-date services to avoid building customer and partner frustration.

Designate an experienced IMO to manage the integration

  • Identify key roles and requirements for the integration at the start of the transaction. Assess your team’s resources, skill sets and capacity to both support the integration and run the business.
  • Establish an integration management office (IMO). This can coordinate work streams, define deliverables and timeline, and provide a forum for reviewing progress.
  • Include in-house expertise from the buyer and the acquired company in the IMO. They can lay out the overall integration methodology to bring the companies to legal closing and a fully integrated target state.

As payments companies use M&A to keep up with the speed of change stemming from digital disruption and innovation, the key to expanding deal value lies in clearly articulating and capturing cost and revenue synergies. Don’t underestimate either the effort to plan for and execute the integration or the impact it will have on your customers and your employees. Integrations need the necessary time, resources and leadership from the initial deal discussions to hit deal targets, maintain business growth, limit disruption and retain talent.

Summary

This report is part of the EY Buy and Integrate series of sector specific reports that encourage CFOs, Chief Development Officers and transaction leaders to take a fresh look at how they identify and capture integration synergies during M&A.

About this article

Authors

Charlie Alexander

EY Global Transaction Advisory Services Leader – Banking Capital Markets Sector

Experienced transaction leader across the Banking and Asset Management sectors. Strong believer in building long-term relationships by doing the right thing. Travel and sports fan. Father of three.

Brian Salsberg

EY Global Buy and Integrate Leader

Passionate acquisition and merger integration leader and aficionado of all things deal-related. Global citizen. World traveler. Husband. Father of two.