JOHANNESBURG - Payment-processing companies, which make the technology that enables web and mobile purchases, are getting a flurry of investments this year as buyers look for ways to profit from the shift to online spending.
Buyout firms see the market as fragmented and ripe for consolidation. It’s also a key part of online retail, an industry that’s growing rapidly.
Retail e-commerce sales rose 23% in the past year through June to $2.29trillion, according to researcher EMarketer Inc. The firm predicts online shopping will account for more than 16% of total retail sales globally by 2021, hitting $4.48trillion.
“Our view is that status-quo is not an option in payments today,” said Jeff Paduch, managing director at Advent International.
“Regulation and technology are driving marketplace change, lowering barriers to entry and creating more competition. It has never been easier to enter and build scale in payments.”
Spending on deals for Internet financial services firms has surged more than seven-fold in the last 12 months and 2017 is already the busiest year for deals in the industry in more than a decade, according to data compiled by Bloomberg.
It isn’t only private equity firms seeking deals. US payment processing firm Vantiv Inc agreed to acquire Worldpay Group Plc, an e-commerce payments company, for about $10.4bn, the firms said yesterday.
Ingenico Group SA reached a deal for Bambora AB for 1.5bn last month, and Global Payments Inc agreed last Thursday to buy units of Active Network from Vista Equity Partners for $1.2bn in cash and stock.
Private equity’s interest in the burgeoning industry marks a shift for many buyout shops more accustomed to making money revamping staid consumer brands than investing in innovation.
These firms are sitting on record amounts of so-called dry powder - money they’ve raised from investors and haven’t deployed, thanks to high levels of liquidity and relatively few attractive takeover targets. That’s pushed more of these companies to look for new places to earn their returns.
The sector has low barriers to entry which allows new “challengers” to enter the market.