Traders on the New York Stock Exchange wait for news on Vantiv on July 5,
US-based Vantiv has agreed to buy Worldpay in a deal worth $9.9 billion. Following a leak that the deal was in progress, the companies were forced to release a statement on July 4; they confirmed there was an agreement in principle to the takeover the following day.
A person familiar with the deal tells Euromoney that a merger between two companies of their size and scale was bound to happen eventually: “Look at any major, global sector and there has to be a move in response to the changing scale of an industry," the person says. "There are more companies becoming global; they need their payments processors to match their scale. I don’t think the story of consolidation in the sector will end after this.”
JPMorgan was approached by Worldpay to bid on the business, but decided not to put an offer in for the company. The offer to JPMorgan may have been because the bank is a corporate broker for Worldpay; it also has its own successful payments division, operating as Chase Merchant Services in the US. Those operations have considerable reach: it processed over $1 trillion of merchant payments for the first time during 2016.
JPMorgan is subsequently not acting as adviser to Worldpay on the merger.
Worldpay started off as part of Royal Bank of Scotland until it had to be sold under EU rules as part of the state aid RBS received after the financial crisis. Since then, over £1 billion has been spent keeping the firm up to date. Worldpay has seen strong growth, processing 15 billion transactions in 2016, with a total value of £451 billion.
Worldpay is looking to expand beyond its home market, as seen with its approach to these two US companies. The firm has a 42% market share in UK payment transactions and wide reach into online transactions through its global e-commerce division.
The deal also comes in response to the emergence of new payments processors such as Stripe and Square, which have been growing quickly in the small and medium-sized enterprise sector. In the face of new regulation, in particular the Payments Services Directive 2 (PSD2), it is likely there will be greater competition.
Vantiv has already acquired another payments company this year when it bought Paymetric in April. Paymetric automates business-to-business payments workflows within back-office systems, including at Oracle and SAP.
It is unlikely that this consolidation will be the last in the payments industry, which has seen considerable change in recent years, with the growth of e-commerce and mobile payments, especially as some regions have picked up on some electronic payments methods more quickly than others.
In such a fractured payments landscape, there are plenty of opportunities for established players to expand into new markets.
The source familiar with the Worldpay deal says that the growth of online stores into multinational corporations covering numerous jurisdictions will increase the demand for joined-up payments platforms that work across all markets: “Complex, global companies like Google and Amazon do not want to have a single payment company to work with in each market. We will see more of these companies coming together to form global, powerful payments providers. Those that move soon will have the first-mover advantage to gain market share.”
The deal still has to undergo regulatory approval, although nothing is expected to be a problem.
The source says: “The businesses fit together well: Worldpay is huge in the UK and Europe, while Vantiv has massive presence in the US. By comparison, the US part of Worldpay and its e-commerce division has not gained much market share. There is not a great deal of overlap of market share that the regulators would find concerning. The businesses sit together quite well.”
The final announcement of the merger is expected to follow by the start of August.