By Théo Leleup and Tom Bendinelli (HEC Paris), Nishil Lakhani (University of Nottingham)
Photo: Nathan Dumlao (Unsplash)
Overview of the deal
Acquirer: EQT (Private Equity firm)
Target: Billtrust Private (BTRS Holdings Inc)
Total Transaction Size: $1.7 billion all-cash deal
Announced date: 28 September 2022
Expected completion date: Q1 2023
Private Equity firm EQT has agreed to take the owner of business payments firm Billtrust private through a $1.7 billion all-cash deal.
EQT manages €77bn in assets with portfolios in Europe, Asia-Pacific and the Americas. Recently, the PE firm, a leader in active ownership strategies, has combined its strength with BPEA (Baring Private Equity Asia) another PE firm to expand its presence in Asia in sustainability and digitalization.
BTRS Holdings Inc (Nasdaq), through its subsidiaries, provides cloud-based software and integrated payment processing solutions that span credit decisioning and monitoring, online ordering, invoice delivery, payments, remittance capture, cash application, and collections. Billtrust sees itself as “Driving AR innovation forward” and as “Transforming B2B payments and the order-to-cash cycle for the world’s largest brands.” BTRS Holdings serves clients in the United States.
“We believe B2B payments and accounts receivable continue to be ripe for massive disruption and innovation, and our partnership with EQT will provide us with greater resources and flexibility to build on our leadership position.” Billtrust CEO, Flint Lane
Company Details (Acquirer - EQT)
EQT is a purpose-driven global investment organisation with €77 billion in AUM across 26 active funds, based out of Sweden, founded in 1994. The company recently closed its €6.8bn acquisition of Baring Private Equity Asia, adding close to €18 billion in AUM to the Swedish PE firm and significantly expanding its presence in Asia.
Founded in 1993, headquartered in Stockholm, Sweden
CEO: Christian Sinding
Number of employees: 1,750
Market Cap: $22.7bn (as of 26/10/2022).
EV: $22.9bn
LTM Revenue: $1.6bn
LTM EBITDA: $939mn
LTM EV/Revenue: 14.0x
LTM EV/EBITDA: 24.4x
Advisors: Evercore is serving as financial advisor to EQT, and Weil, Gotshal & Manges LLP is acting as legal counsel to EQT
Company Details (Target - Billtrust)
Founded in 2001, headquartered in Lawrenceville, New Jersey, United States
CEO: Flint Lane (founder and CEO since 2001)
Number of employees: 687
Market Cap: $1.5bn (as of 21/10/2022)
EV: $1.4 bn
LTM Revenue: $179.1M
LTM EBITDA: -$49.3M
LTM EV/Sales: 8.63x
LTM EV/EBITDA: n.m.
Advisor: J.P. Morgan Securities LLC is serving as exclusive financial advisor to Billtrust, and Davis Polk & Wardwell LLP is acting as legal counsel to Billtrust.
Projections and Assumptions
Short-term consequences
EQT’s $1.7bn all-cash acquisition of Billtrust will form part of their 10th flagship fund “EQT X”. Following this transaction, EQT X will reach 10-15% invested towards its target fund size of €20bn.
EQT has an established track record and will deliver significant resources to partner with Billtrust. They aim to advance Billtrust’s mission of digitising the B2B and accounts receivable space; and help strengthen and streamline their finance operations.
Billtrust, since its inception in 2001, has maximised its customers’ operational efficiency with a flexible and integrated cloud solution. Their AR automation and seamless B2B payments system enables companies to accelerate the order-to-cash cycle by shifting away from paper invoicing to Billtrust’s digital payments system. Their innovative solution is an “intersection of software, fintech and payments – sectors in which EQT has deep familiarity and a track record of success with.” EQT aims to work with Billtrust to disrupt the digital payments industry as we move into the digital era.
The transaction is expected to close in Q1 2023 subject to Billtrust’s shareholders’ approval and applicable regulatory approval. Upon completion of the transaction, Billtrust’s shareholders will receive $9.50 per share which is a 64% premium above the closing share price of $5.77 on 27th September 2022. In addition, Billtrust’s shares will no longer trade on the NASDAQ and will become a private company.
Long-term Upsides
First, a really complete report from Mordor Intelligence projects the digital payments market to register a CAGR of 12.4% from 2022 to 2027. The enlargement of the market is being powered by the widespread launch of mobile wallets and the growth in numerous technological progress in smartphones, digital settlement cards, and POS at retail terminals.
Thus, New Jersey-based Billtrust brings a cloud-based operating system that aids businesses’ conversion from paper invoicing to an integrated digital payment system. Second, EQT aims to advance Billtrust’s leading offering in the area of accounts receivable automation that is a currently underexploited space. It allows us to believe that this win-win combination will follow the digital payment and account receivable optimization trend in a long-term perspective and justifies the large premium.
Eventually, according to a Reuter source: “EQT was drawn to Billtrust's high-quality product and strong growth potential, including through geographic expansion”.
Risks and Uncertainties
The risk of overpayment is present as payment companies (not only Billtrust but also PayPal or Block) are experiencing valuation declines due to the declining outlook for technology stocks. Of course, this decline is also partially due to the fact that these stocks had considerably increased over the Covid crisis with a peak in January 2022.
This risk is somewhat mitigated by the fact that according to Axiom Groupe, the market for invoice-to-cash software could reach $3bn within two years, growing by 12.1% from 2019, which would give Billtrust interesting growth opportunities. Furthermore, through strategic acquisitions, Billtrust is currently expanding its geographical base outside of the US (e.g., acquisition of Amsterdam-based Order2Cash to expand in the EU market).
Although Billtrust is New Jersey-based and EQT Sweden-based, as this appears to be a friendly merger, we do not believe that any type of managerial issues or geographical tensions will appear following the merger. We believe that both partners will complement themselves in the future to deliver growth and satisfying earnings.
In our opinion, the likelihood of the transaction closing is not jeopardised as Billtrust’s board already approved the deal and EQT secured its financing, mainly with a loan from Sixth Street and two other lenders. Furthermore, the risk of rejection from shareholders and from regulatory institutions is low.