By Anna Muizniece and Carl-Gabrial Jakobsson (Stockholm School Of Economics), Rhys Meredith, Salah Baaziz, Kian Patel, Oliver Platts, Samuel McCrea and Velizar Zlatev (University of Bristol)
Photo: Rodion Kutsaiev (Unsplash)
Overview of the deal
Acquirer: Nuvei
Target: Paya
Total Transaction Size: $1.3bn
Closed date: Q1 2023 (Expected)
Target advisors: Barclays Capital Inc., BMO Capital Markets, RBC Capital Markets and Evercore (Financial), Davis Polk & Wardwell LLP and Stikeman Elliott LLP (Legal)
Acquirer advisors: J.P. Morgan Securities LLC and Raymond James & Associates (Financial), Kirkland & Ellis LLP (Legal)
Payment technology solutions provider Nuvei recently announced its acquisition of B2B payments company Paya for an expected $1.3bn. The Canadian fintech company plans to integrate Paya’s offerings to improve its integrated payment capabilities, diversify its business and amplify the existing growth strategy. The all-cash offer is expected to close for $9.75 per share, financed by a combination of cash on hand, an existing credit facility and a newly committed $600 million first lien secured credit facility. The Board of Directors at Paya unanimously approved the transaction and intend to recommend the transaction to Paya’s shareholders. The purchase price constitutes a 25% premium from the January 6, 2023 closing price and a multiple of 13x EV/2023E Adjusted EBITDA. The deal's synergies expect to reach $21mn within 24 months. The transaction marks a significant step in the development of Nuvei and enhancement of its growth plan.
“The proposed acquisition of Paya is a powerful next step in the evolution of Nuvei, creating a preeminent payment technology provider with strong positions in global eCommerce, Integrated Payments and business-to-business.” - Philip Fayer, Chief Executive Officer (Nuvei)
Company Details (Acquirer - Nuvei)
Nuvei is a global provider of payment technology solutions to merchants and partners. Nuvei offers businesses pay-in and pay-out options including card issuing, banking, risk and fraud management services, and enables businesses to accept alternative payment methods. The company serves businesses and customers in over 200 markets, with local acquiring in 47 markets, 150 currencies and 586 alternative payment methods.
Founded in 2003, headquartered in Montreal, Quebec, Canada
CEO: Philip Fayer
Number of employees: 1,500
Market Cap: $4.8bn (as of 30/01/2023)
EV: $4.6bn
LTM Revenue: $834.9mn
LTM EBITDA: $199.6mn
LTM EV/Revenue: 5.5x
LTM EV/EBITDA: 23.1x
Company Details (Target - Paya)
Owned by Chicago-based private equity firm GTCR, Paya is a leading technology company that offers secure and innovative payment solutions to small and large enterprises. The firm processes over $40bn of annual payment value across a range of services including credit/debit card, electronic payments processing of paper checks and ACH debits/credits from a checking account. It specialises in front-end CRM (customer relationship management) and back-end accounting systems to ensure superior customer experience in high growth verticals such as healthcare, education, government and utilities.
Founded in 2006, headquartered in Atlanta, Georgia, United States
CEO: Jeff Hack
Number of employees: 457
Market Cap: $1.3bn (as of 5/02/2023)
EV: $1.4bn
LTM Revenue: $276.9mn
LTM EBITDA: $56.2mn
LTM EV/Revenue: 5.0x
LTM EV/EBITDA: 24.5x
Projections and Assumptions
Short-term consequences
The acquisition will allow Nuvei to capitalise on the domestic and global software-led market opportunity by leveraging Paya’s 300+ independent software vendor platforms and end-to-end commerce solutions. Nuvei will diversify its offerings through Paya’s strong presence in high growth non-cyclical verticals, B2B and more, with a large addressable market. Moreover, Nuvei will be able to offer Paya’s leading ISV and B2B solutions in its global markets and establish its capabilities with Paya’s customers. Furthermore, the acquisition will improve Paya’s fraud and risk management services through tools accessible via integration with Nuvei’s subsidiary, Simplex. The subsidiary enables merchants to securely accept various payment methods, including credit card transactions without risk of chargebacks. Since the deal's announcement, Paya’s stock has gained 25%. The transaction is expected to be accretive and to close at the end of the Q1 2023.
Long-term Upsides
The proposed transaction will accelerate Nuvei’s integrated payment strategy. Paya’s highly complementary payment opportunities will be integrated with Nuvei’s global technology platform and combined with Paya’s deep software integrations to allow Nuvei to capitalise on forthcoming opportunities in the global software-led market. This is especially poignant as Integrated Payments is the highest-growth card payments distribution channel in the U.S. In 2021, roughly 41% of new merchants in the US were signed from the integrated payments channel.
Paya’s strong footprint in key non-cyclical verticals, including B2B goods and services ($1.2tn TAM) will diversify growth opportunities. Paya's deep enterprise resource planning integrations and end-to-end commerce solutions position Nuvei to capitalise on the domestic and global B2B opportunity in a market expected to grow at a 10%+ CAGR (2019-2026).
Risks and Uncertainties
Nuvei’s acquisition of Paya could prove to be a complex and potentially risky venture due to the current board of directors being investigated for not acting in the best interest of shareholders and potential conflicts of interest arising out of GTCR's status, Paya’s largest shareholder holding a 31% stake. The investigation into Paya’s board for not acting in the best interest of shareholders is a risk that must be considered when evaluating the acquisition. In a worst case scenario, shareholders might have legal claims against the company, which could result in significant financial losses and reputational damage, affecting all parties involved in the transaction.
Additionally, given that both companies operate in Canada and the US, if there are any regulatory violations that come to light such as cross-border regulations and consumer protection laws, the acquisition could be jeopardised. Furthermore, consolidation into the US market could make Nuvei more susceptible to an economic downturn, with many US companies bracing for a recession as the Fed pushes for higher interest rates. There is however a hope to offset this by diversifying into Paya’s verticals which are less fluctuant to changing consumer demands e.g., education and healthcare.
In conclusion, although the acquisition of Paya has been widely seen as a stable move, the deal is accompanied by risks due to legal claims and a changing geographic business model which may or may not respond well to fluctuating consumerism.
“We continue to see strong momentum in our high-growth and underpenetrated middle market partners in durable end-markets, and believe that Nuvei’s resources will enable us to continue our mission of solving complex business problems with easy-to-use payment solutions.” Jeff Hack, Chief Executive Officer (Paya)