By Riccardo Colombo, Lorenzo Mirone, Federico De Rosa (Università Bocconi) Tim Bamberger and Affan Ahmed (King’s College London)
Overview of the deal
Acquirer: Nexi
Target: Nets
Implied Equity Value: €7.8bn
Total Transaction Size: €7.8bn - 100% of the target shares
Closed date: 15th of November 2020
Target advisor: Credit Suisse, JP Morgan - lead financial advisors
Just weeks after completing a deal with its domestic competitor Sia, Nexi has announced a €7.8bn all-shares merger with the Danish digital payments provider Nets. The transaction comes amid a wave of consolidation in the payments sector. This has been fueled by the need for scale of digital companies planning to undertake huge investments in technology, key to remaining competitive.
Following the deal, Nexi will become the European paytech leader, with a presence in more than 25 countries of the continent. Greater diversification and scale will go together with strong profitability, as shown by the €2.9bn in revenues and €1.5bn EBITDA projected for 2020.
Company Details: Acquirer – Nexi
Nexi SpA (formerly known as CartaSi) is a financial technology company based in Italy, and its core business is the provision of best-in-class services and digital infrastructures aimed at supporting banks, individuals, businesses, institutions and public administration. The products and services offered can be divided into three segments: Merchant Services & Solutions, Cards & Digital Payments, Digital Banking Solutions. Nexi is also a key player in the world of investments.
Founded in 2017, headquartered in Milan, Italy
CEO: Paolo Bertoluzzo
Number of employees: 1945
Market Cap: €9.8bn (as of 11/23/2020)
EV: €13bn (as of 11/23/2020)
LTM Revenue: €1.5bn (as of 6/30/2020)
LTM EBITDA: €405m (as of 6/30/2020)
LTM EV/Revenue: 8.5x
LTM EV/EBITDA: 32.1x
Company Details: Target - Nets
Nets is a leading provider of digital payment services and related technology solutions across Europe. Nets operates along the entire payment value chain, from payment authorisation to settlement. It operates through 3 main channels: Merchant Services, Issuer & eSecurity Services, and Corporate Services. In addition, Nets manages a deep-rooted network connecting merchants, financial institutions, corporate customers and consumers, enabling them to make and receive digital payments.
Founded in 1968, headquartered in Ballerup, Denmark
CEO: Bo Nilsson
Number of employees: 3000
Market Cap: NA
EV: NA
LTM Revenue: €721m (as of 6/30/2020)
LTM EBITDA: €273m (as of 6/30/2020)
LTM EV/Revenue: NA
LTM EV/EBITDA: NA
Projections and Assumptions
Short-term consequences
For both networks, a simple, oriented and properly-phased integration and synergy realization plan has been established. The synergies of Nexi-Nets rely primarily on merchant providers for sales and on those outside Italy for revenue. Nexi-SIA synergies concentrate primarily on revenue distribution and digital banking & corporate solutions.
At the same time, a concentrated collection of joint fast-track initiatives will be introduced from the very outset to ensure that the production of value from synergies begins immediately after closure. Such programmes will be based on delivering one European e-commerce and multichannel proposal, one SME proposal for the next decade, one technology strategy, immediate mutual planning of capital (opex and capex) and buying.
A theoretical combination will create the leading European player in the digital payments landscape, with unprecedented scope, software, expertise and product portfolio, to serve a wide variety of clients as a "one-stop-shop." Further value will be reflected by this transaction and development of opportunity for all shareholders of Nexi, thus consolidating the power of the Company and prospects for broader goods and services across an extended and diversified geographic scope.
Long-term Upsides
Nexi SpA’s acquisition of Nets benefits the long-term vision of investors to gain a larger market share in the international payment provider industry. The sudden collapse of Wirecard AG, driven by a massive accounting scandal, could be a reason for investors to expect close scrutiny by regulators going forward. More importantly, it offers great opportunities for the newly-formed merger to take remnants of Wirecard’s market share that remain unclaimed. Nexi had previously been looking to expand their client base through a few acquisitions of smaller payment providers, such Concardis. A previous divestment of a real-time payment system to Mastercard has provided the group with $3.2 billion in liquidity. After a successful integration, Nexi will possess the strength to expand its position on a global level.
Nexi has announced in a press release that the transaction will be an all-share merger including long-term lock-up commitments. The group will not be expected to suffer from long-term financial pressures resulting from the acquisition since no stakeholders expect extensive debt to be issued. The long-term synergies of the deal are expected to amount to €150m as reported by the Financial Times.
Risks and Uncertainties
This deal is going to create value for Nexi shareholders, with cash synergies estimated at €170 million euros per year and a projected growth of over 25% in cash EPS considering this deal and the acquisition of SIA together. On the opposite side, the company will result in having a significant debt, mostly deriving from the strategy followed in the last period, which includes numerous acquisitions and dividend payments to shareholders. The customer portfolio is deeply concentrated: in fact the 10 principal banks served accounts for 60% of the revenues. Looking at future positive growth, Nexi-Nets has the great opportunity to develop together with the Italian market of digital payments, which is strongly behind European average. This opportunity projects Nexi as one of the most relevant stocks in the FTSE MIB Index, due also to the forecasted EBITDA growth of 13–16% in the medium run, significantly higher than European competitors. In addition to this, the Italian economy is trending towards the use of digital and card payments, boosted by e-commerce tailwinds from the pandemic, so the projected path seems to be credible. The Italian government is also planning to incentivize digital and card payments with a cash-back system based on the total amount of purchases, a measure that, if approved by the parliament, will add a boost to the development of this sector.