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Payments M&A - A New Normal

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Commentary by TSG’s Sam Wares

Both investment and payments companies utilize TSG on two fronts relative to M&A: (1) assistance with due diligence, valuations and assessments for prospective deals, and (2) buy-side and sell-side services. This is a unique position, and as a result, TSG operates in an environment where we are often privy to market insights when carrying out our day-to-day activities. With the second quarter of 2024 upon us, let’s look at what has transpired so far and the expected trends for the remainder of the year. 

As noted in my colleague Zach Spellman’s recent edition of TransactionWatch, deal pace in Q1 2024 tracked closely to what we saw in 2023, with a total deal count of 18 transactions. That is one less than Q1 of 2023. As a reminder, deal count in all of 2023 (72 deals) saw a 37% drop compared to 2022 (114 deals) after having dropped 14% from a peak in 2021 (132 deals).  

So, how will deal count look in 2024 when we hit the end of the year? When considering primary trends within payments M&A, my guess is that the number will be much closer to last year than the heights of 2021. Let’s review some key topics likely to shape M&A payments in 2024.  

Profitability vs. Growth 

First, similar to last year, buyers remain focused on profitability in acquisition targets as opposed to growth potential. I view this as the main factor that has suppressed deal count and will continue to do so. While growth and the future potential for growth are of value, profitability is king. At a minimum, we see buyers requiring a clear path to profitability if a multi-year track record has yet to be established. This is supported by a recent report from Bain & Company that states, “The environment has much less tolerance for cash-burning models.” 

Sellers Continue to Seek Inflated Multiples 

Another 2023 factor that has endured is the disconnect between buyers and sellers on multiples or deal values. I blame this primarily on sellers as they continue to seek the elevated multiples paid in 2021 when the market was at the height of its speculative period. A select few can demand those premiums, but those are the exception and not the norm. We have seen multiple deals dissipate in the last month solely because sellers want 2x’s median multiples.  

Record Private Equity Dry Powder  

It has been widely reported that a record amount of deployable capital is available amongst private equity firms. It’s hard to argue that we have not already seen this impact with the recent announcement of Nuvei going private and the closing of GTCR’s deal for Worldpay. There have been rumblings that Shift4 may be next. Regardless of whether or not that happens, TSG is experiencing enough activity amongst private investment firms to confirm that private capital is indeed looking to payments as an area to infuse some of their cash. 

Large Payment Acquirers are Buyers 

Several articles can be found with statements from leaders at Fiserv and Global Payments about their intent to grow through acquisitions. Fiserv created a role specific to identifying and facilitating M&A deals, and one of the benefits of the FIS and Worldpay split was that it allowed Worldpay to be more active with acquisitions. Whether it is a strategic platform play or a tuck-in deal, it is reasonable to expect large payment acquirers to help drive activity this year. 

The Bottomline 

In an era marked by digital transformation and the rise of cashless transactions, payments companies stand at the forefront of innovation, reshaping how we exchange value in an increasingly interconnected world. Within this dynamic landscape, while it is true that mergers and acquisitions are driving strategic alliances, market consolidation, and technological advancement, it appears as though we may need to get used to a slower pace with more intention where profitability rules.  

As previously noted, TSG is available to assess merchant portfolios, payments technology, and can match buyers and sellers. Contact us to learn more.