By Dillan Pindoria, Hassan Wahba, Holly Bridges, Bhav Rambhiya and Nishil Lakhani (University of Nottingham) and Felix Hooper, Gonzalo Riera-Ripoll, Yana Zharkova and Rafi Glass (Durham University)
Photo: Tech Daily (Unsplash)
Overview of the deal
Acquirer: Madison Dearborn Partners
Target: MoneyGram
Implied Equity Value: $1.8 billion
Total Transaction Size: $1.8 billion
Closed date: Q4 2022
Target advisor: BofA Securities, Inc.
Madison Dearborn Partners (“MDP”) announced on 15th February 2022 their plans to acquire MoneyGram, one of the largest money-transfer services in the U.S., in a $1.8 billion all-cash transaction.
MoneyGram has been a potential takeover target during the rapid expansion of the digital-payments industry over the past few years. Chinese financial-services conglomerate Ant Group Co. announced their intent to buy MoneyGram in 2017 but the deal fell through after pushback from regulators.
MDP’s agreement includes a 30-day “go-shop” period expiring on March 16, 2022, encouraging MoneyGram to seek alternative proposals.
Providing the deal closes, MoneyGram will become a private company, which will allow for accelerated innovation and facilitate the evolution of their cross-border payment technologies aiding the expansion of their global platform. The leading Chicago-based private equity firm, MDP, will pay $11 per share, which upon speculation of the deal on 14th December 2021, represented a 50% premium to the stock’s closing price. Hence, this transaction provides immediate value to stakeholders through the advancement of MoneyGram’s growth strategy.
BofA Securities Inc. will be the exclusive financial advisor to MoneyGram and Goldman Sachs & Co. LLC will act as the leading financial advisor to MDP. MDP has also agreed to refinance $799 million of MoneyGram’s debt which will be provided by Goldman Sachs Group Inc., Deutsche Bank AG and Barclays Plc.
“This transaction provides exciting opportunities for our dedicated MoneyGram team and partners, and I'm incredibly excited about the path ahead." – Alex Holmes, MoneyGram Chairman and CEO
Company Details (Acquirer - Madison Dearborn Partners)
Madison Dearborn Partners (“MDP”) is a leading Chicago-based private equity specialised in buyout and growth equity investing. MDP has raised aggregate capital of $28 billion and completed over 150 investments in the past 40 years. This track record demonstrates their ability to work in partnership with company management to successfully grow businesses.
Founded in 1992, headquartered in Illinois, Chicago
CEO: Paul J. Finnegan and Samuel M. Mencoff
Market Cap: N/A
Company Details (Target - MoneyGram International)
MoneyGram International, (NASDAQ: MGI), is a global leader in the evolution of digital cross-border peer-to-peer (P2P) payments and delivers innovative financial solutions to connect the world's communities.
Founded in 1980, headquartered in Dallas, Texas, United States
CEO: Alexander Holmes
Number of employees: 2,900
Market Cap: $987.84m (4/3/22)
EV: $1.22bn
LTM Revenue: $1.28bn
LTM EBITDA: $222.2m
LTM EV/Revenue: 0.95x
LTM EV/EBITDA: 5.49x
Projections and Assumptions
Short-term consequences
While the deal is expected to close in the fourth quarter of 2022, it awaits shareholder approval and receipt of regulatory approvals. As part of a 30-day “go-shop” period, which ends in the middle of March, MoneyGram may seek out competing offers. This remains unlikely as shareholders showed positive market sentiment, with shares rising 18% to $10.55 on February 15, 2022, following the announcement of the transaction. Shareholder appetite for the deal comes after a failed acquisition by Ant Group in 2017, and an increased bid by Madison Dearborn Partners by $0.50 a share.
Upon the closing of the transaction, MoneyGram is not expected to change either its leadership structure, brand image or headquarters. This is due to MoneyGram being a mature company that has been recently exceeding the expectations regarding its revenue growth and digital transformation. It means that Madison Dearborn Partners will initially be more focused on the operational side of the business, privatising MoneyGram.
Following the transaction, Madison Dearborn Partners will refinance MoneyGram’s outstanding debt. Through debt refinancing, MoneyGram may seek more favourable loan terms, lower interest rates, reduce risk or increase their access to cash. With outstanding debt totalling $799 million, securing favourable interest rates at current market lows would immediately reduce costs.
Long-term Upsides
Taking MoneyGram private presents an opportunity to expedite MoneyGram’s development - particularly with regards to its digital business - without the restrictions of public market regulations or needing to produce short-term results. Madison Dearborn’s investment, and expertise within the technology and financial services sectors, will help MoneyGram achieve its aim of increasing the digital share of its transactions from 38% in 2022 to 50% in 2024. With MoneyGram’s digital customers transacting more frequently than its cash-based customers, it’s expected that the increased emphasis on the digital aspect will contribute to raising the company’s revenue multiple of its equity market cap, which, at less than one, is lower than MoneyGram’s competitors.
Madison Dearborn’s technological proficiency, and ability to fund a more aggressive marketing campaign, will further assist MoneyGram with its progression into the cryptocurrency sphere. The relentless focus on all digital aspects to MoneyGram’s business is likely to generate long-term financial success for them and, subsequently, Madison Dearborn itself.
Prior to the takeover, MoneyGram struggled to capture revenue from the growing market of online transactions, largely due to two reasons. Firstly, they struggled with a debt burden of $800 million. Madison Dearborn’s investment will add commitment to refinancing to help alleviate this stress. The increasing threat of competition, particularly from Remitly Global Inc (RELY.O) and Western Union Co (WU.N), has similarly hampered revenue capture.
Both Remitly and Western Union have adapted to market changes, influenced by COVID-19, more efficaciously. Whilst some customers stopped being able to send money back home, those customers who could sent a much higher principal amount due to the financial exigencies of COVID-19. Sending remittances became digitalised, following social distancing requirements. Western Union in particular, not only adapting to this change by building a reliable digital platform, also plan on pursuing a blend of white label and direct consumer offerings. They will provide a wider suite of financial services to their customers, starting with a “multi-currency bank account”. This will encourage its consumers to stay consistent with using WU, hence helping retain customers.
MoneyGram will hope to emulate these better-adapted companies, when there is expected to be higher international trade and an increased market of cross-border payments post-COVID. It is vital that MoneyGram can tap into this market and maximise revenue. The long-term goal that MoneyGram (currently valued at $9 billion) will hope for will reflect the steep growth of firms like Block (SQ) and PayPal, the former of which now valued at $64 billion compared to its $3 billion 2015 IPO, and the latter now valued at $133 billion.
Risks and Uncertainties
A shift to digital transfers is key to ensure MoneyGram’s long-term growth. Whilst partnerships with digital Fintech firms such as Paytm Bank and Smiles have accelerated the company’s shift to digitalisation, 75% of the business still relies on non-digital transfers, a business segment that “could shrink for several years”, according to William Blair.
Similarly, having formed a partnership with payments provider Ripple in 2019, the Cryptocurrency space quickly became an integral part of MoneyGram’s business. Unfortunately, the former’s legal tussle with the SEC curtailed such efforts. MoneyGram abandoned their arrangement and instead chose to further their relationship with Coinme, the largest licensed cryptocurrency exchange in the US. Hence, regulatory and competitive forces remain a central threat to MoneyGram’s shift to digitalisation.
It is also difficult to ignore the significant burden that Moneygram’s debt has had on its business and growth in recent years. With Moody’s and S&P assigning Moneygram a B3 and B credit rating, respectively, and both taking a negative outlook, their debt obligations could pose a significant hurdle in adapting to the ever-changing P2P market. It remains to be seen if the debt refinancing secured by Madison Dearborn Partners will play a key factor in allowing Moneygram to become competitive and take on the new entrants.
There is a degree of ambiguity surrounding Madison Dearborn Partners’ long term strategy beyond their digital growth plans. Moneygram has long been a takeover target for a digital payments play, and their attitude shift away from cash and towards digital P2P is inevitably going to be a pivotal factor in their future growth.
"We are excited to enter into this transaction with Madison Dearborn Partners, which will deliver immediate and compelling value to shareholders and enable us to accelerate the advancement of our digital growth strategy." - Alex Holmes, MoneyGram Chairman and CEO