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Popular (BPOP) Inks a Deal with Evertec, Amends Contracts

Popular, Inc. BPOP and its wholly-owned subsidiary, Banco Popular de Puerto Rico, (“BPPR”), inked a deal with Evertec, Inc. EVTC and Evertec Group, LLC. to boost the ongoing digital transformation and enhance the client experience. Per the deal, Popular will acquire assets and assume liabilities used by Evertec to service certain BPPR channels. The transaction is expected to close on or about Jun 30, 2022, on receipt of certain customary closing conditions.

In conjunction with the deal closure, Popular and BPPR will extend and amend service agreements, per which Evertec provides payment processing as well as information technology and services, and other services. The agreements’ modifications will eliminate service exclusivities. It will also diminish service costs resultant from discounted pricing and reduced caps on contractual pricing escalators tied to the Consumer Price Index.

The alterations in agreements are also anticipated to hone Popular’s competency in timely customer need fulfillment, apart from offering opportunities to develop and improve technology platforms, and select service vendors.

At the success of the acquisition, BPPR will amend and extend the deal governing its merchant acquiring relationship with Evertec. The new agreement will facilitate BPPR with revenue sharing, apart from deepening its relationship with Evertec in payments.

Popular will deliver 4,588,955 shares of Evertec common stock it holds, valuing the transaction at $196.6 million. After the transaction is closed, Popular’s ownership stake in Evertec is expected to be 10.5%.

Popular will also record an after-tax gain of nearly $135 million due to the use of Evertec shares as purchase consideration. Moreover, the effects of the reduction of Popular’s participation in Evertec below 4.5% are projected to garner $215 million in after-tax gains.

Popular plans to return after-tax gains resulting from such sale to its shareholders via stock repurchases, subject to the receipt of regulatory consents.

Excluding these gains, the financial benefits of the agreement during the first full year are anticipated to be neutralized due to Popular’s earnings riddance from its equity investment in Evertec and the subsequent reduction in voting ownership stake. Nonetheless, the transaction’s financial impacts are expected to be accretive in future years on the grounds of incremental merchant acquiring revenue-sharing income and future price cuts in continuing services.

At or after the closing of the acquisition, Popular expects to add 175 employees and contractors to help with the servicing of the key channels, and bolstering and enhancing Popular’s in-house technology bench.

Ignacio Alvarez, president and CEO of Popular, remarked, “This transaction will enhance our client experience and allow us greater flexibility to meet our customer demands. Evertec will continue to be a key strategic partner and we look forward to working together to build on our payments strategy.”

Mac Schuessler, Evertec’s president and CEO, said, "This transaction represents the next step in a multi-year strategy that started back in 2015 of repositioning Evertec as a premier payment player in the region and an essential partner to Banco Popular solidifying our relationship with our largest client."

Conclusion

We believe that the company is well-poised to capitalize on its leading position in the Puerto Rico market. Moreover, a strong capital and liquidity position favors such acquisitions.

Shares of BPOP have gained 14.5% in the past six months, while Evertec’s stock has recorded a 10.5% fall.

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BPOP sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Meanwhile, EVTC carries a Zacks Rank #4 (Sell).

Inorganic Growth Efforts by Other Firms

Several companies from the finance sector are making consolidation efforts to improve competencies to counter the low interest-rate environment.

Walker & Dunlop, Inc. WD inked a deal to acquire GeoPhy, a commercial real estate technology company. The transaction, expected to be complete in the first quarter of 2022, is subject to approvals.

Per the terms of the transaction, Walker & Dunlop will pay $85 million in cash at the closing in addition to $205 million of cash earn-out potential. The cash earn-out potential is structured to directly align with WD’s Drive to '25 goals.

Truist Financial Corporation’s TFC subsidiary, Truist Insurance Holdings, Inc., signed an agreement to acquire Kensington Vanguard National Land Services. The deal is expected to close in the first quarter of 2022. The details of the transaction are not yet disclosed.

The transaction is expected to aid Truist Insurance in expanding its business in title insurance. The existing title operation of TFC is BridgeTrust Title, which will likely be integrated with Kensington Vanguard.


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