Global Payments Inc. GPN has announced to buy Total System Service, Inc. TSS, a merchant acquirer and the largest third-party credit-card processor in the United States. The deal will transform Global Payments into a pure play payments technology company with extensive scale and unmatched global reach.
Global Payments, a leading company in the payments industry, has shown an impressive run in the past year with its shares gaining 38% compared with the industry’s rise of 11%. The stock also surpassed earnings estimates in 20 out of the last 21 reported quarters, reflecting its consistent operating profitability.
In fact, over the past five years, the stock has risen nearly 350% compared with its industry’s growth of 68%.
Global Payment’s solid performance has been driven by its inorganic growth strategy, which has expanded its scale, size, geography, business and product portfolio. It expects to witness continued growth with the acquisition of Total System.
Post the acquisition, Global Payments will carry a leading position in integrated payments market, owned software and ecommerce and omnichannel solutions. It will have a significant exposure to fast growing markets globally with physical and virtual presence in more than 100 countries.
The company will be able to better serve its customers via cutting edge technology solutions focused on small and medium business customers and premier financial institutions globally.
Post the deal, which is likely to close by the end of 2019, Global Payments expects adjusted net revenue plus network fees of nearly $8.6 billion, and adjusted EBITDA of nearly $3.5 billion. In the most recent earnings release, the company guided adjusted net revenue plus network fees in the range of $4.43 billion to $4.49 billion. The combined company is expected to have investment grade ratings.
The deal will also lead to at least $300 million in annualized run-rate cost synergies, with majority of synergies to be driven by significant areas of overlap. Full synergy benefits are expected to be realized by the third year, after the close of the deal.
The deal will be the biggest in the history of Global Payments and will provide it an increased market presence in the payments industry, which is expanding rapidly and transforming from physical to cashless and electronic. It reflects the company’s buyout strategy in order to achieve growth via inorganic means.
Global Payments has several acquisitions to its credit like that of Heartland Payments Systems in 2016, assets of FIS Gaming Business, Pay and Shop Limited, Ezidebit, PayPros, eWay, the communities and sports divisions of ACTIVE Network, AdvancedMD, SICOM.
With the most recent buyout, Global Payments will be cementing its presence in the fast consolidating payments space, which would create stiff competition. The payments industry has witnessed a string of deals in the recent times, with two mega merger in process – Fidelity National Information Services Inc. FIS to acquire Worldpay and Fiserv to buy First Data Corp. FDC. In the same vein, in 2018, PayPal bought Swedish fintech company iZettle.
Global Payments’ valuation and a Zacks Rank #2 (Buy) makes it a good buying option. We believe that the stock carries a premium valuation due to its strong fundamentals. It is currently trading at forward 12-months price to earnings (P/E) of 23.8 which is almost close to the industry P/E of 23.1. The same is also lower than the five-year median level of 20.8.
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