Bigger is Better in Payments: Worldline Not Done With Deals

(Bloomberg) -- Worldline SA’s 7.8 billion-euro ($8.6 billion) acquisition of rival Ingenico Group SA will create a European payments giant, but the combined French behemoth may still simply not be big enough to face off globally against its substantial and fast-moving U.S. competition.

Trillion-dollar tech firms like Apple Inc. and Inc. are rapidly expanding their payment products across the globe, and Apple Pay has already eclipsed the mobile payment solution offered by Copenhagen-based Nets A/S. Paypal Inc. posted $17.8 billion last year, and Fiserv Inc., which acquired First Data Corp. in the same period, generates about $15.3 billion in revenue.

Worldline plans that its latest acquisition -- the biggest deal of the year so far in Europe -- will help it generate annual revenue of about 5.3 billion euros, however. And, with the Ingenico purchase, it also takes on a company that for years has struggled to pivot from legacy operations of capturing transactions on behalf of credit card companies in stores, toward areas like online shopping.

Worldline Chief Executive Officer Gilles Grapinet says there are more deals to consider.

“While acquisitions certainly enable us to acquire new innovative solutions and talent to strengthen our ranks, they also significantly increase our strength in innovation,” he told Bloomberg, adding that the company planned to remain “a driving force” behind industry consolidation on the continent.

The global payments industry may reach $2.7 trillion a year in revenue by 2023, according to research by McKinsey, and is spread among those who help connect consumers, merchants, and banks. Worldline is already a European leader in many of those areas. The Ingenico merger will also vault it above Germany’s Wirecard AG in terms of market value, behind only Dutch-based Adyen AG.

Worldline’s share price has gained about 10% for the year to date, and about 36% over the past 12 months. The presence of a sizable and growing European payments firm among U.S. giants will help speed up the ongoing consolidation on the continent, said Martina Weimert, Partner in the Financial Services Practice at Oliver Wyman.

But Jonathan Simnett, director at the tech mergers and acquisitions advisory firm Hampleton Partners, described Worldline’s Ingenico deal as “defensive.”

“They will still be under pressure as buying habits continue to change and more transactions move online,” he said. “They must move very quickly to stay relevant.”

A clue as to whether and how Worldline can do so may be found in observing its loyalty toward old businesses, both of its own and those of its deal targets. For instance, the strategic review for Ingenico’s legacy business of terminals leaves “options open” for that unit, Grapinet told reporters on Monday.

Like it’s U.S. rivals, Worldline is also trying to find startups that can keep it nimble. Last year it helped create a fintech incubator focusing on e-payments, and partnered with Swiss crypto financial-services Bitcoin Suisse to get a footprint in the cryptocurrency payment services.

“Everybody is under competitive pressure, everyone is trying to grab more of a declining market,” said Simnett. “Expect bigger players to form, we will see more consolidation.”

©2020 Bloomberg L.P.

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