By Jeffrey Green (@epaymentsguy)
Armed with separate card-portfolio contracts with two major oil companies in Europe, WEX Inc. and FleetCor Technologies Inc. appear poised for significant competitive battles as they strive to grow more fleet card processing business in the region.
On May 1, FleetCor announced it is acquiring Shell’s small and midsize (SME) enterprise fuel card portfolio in Germany. Last fall, WEX announced its intention to acquire ExxonMobil’s European commercial card portfolio.
For both companies, the moves represent bases from which they intend to expand their European presence.
“Exxon will be a key strategic addition that we anticipate will build out our fleet presence in Europe, a critical element to our international strategy,” Melissa Smith, WEX president and CEO, noted during a call with analysts last week. Similarly, Ronald Clarke, FleetCor chairman and CEO, commenting on the Shell deal during his company’s own earnings call, said, “We've been at it quite a long time trying to secure a meaningful full outsourcing deal in Europe that could serve as a launching pad for us, and now we have it.”
Nothing is expected to occur quickly for either company, as both now must go through various stages of implementation. WEX, which also has a private-label fuel card contract with an undisclosed company “that has significant presence in that region,” Smith said, has an obvious head start, though it must go through a more tedious process because of how extensive the deal is.
The ExxonMobil relationship has been one of transition, Smith noted on the call. “I’d say it’s just a great extension of the relationship that we started in the United States, moved into Canada then we went into Europe and (are) now moving into the Asia PAC region,” she said. “Those are the markets that they’re in, and so we’re assisting with the business that they already have set up.”
In providing analysts an update on the progress WEX has made with ExxonMobil in Europe, Smith noted that the transaction consists of three phases: the completion of the employee information and consultation processes and merger-clearance approval; operation readiness, which consists of setting up key systems and infrastructure for the closing of the transaction; and the conversion of ExxonMobil’s portfolio to WEX’s system.
Commenting on each of the phases, Smith said WEX has continued to make considerable progress on the employee and regulatory front. “The European Commission has given merger-clearance approval for the transaction, and the information and consultation process with country employee councils is continuing to go well,” she said.
For the second phase, WEX has been focused on developing and executing against the detailed project plan, which includes building out its systems and infrastructures to support the program. “Today we’ve successfully established our European presence, and the team continues to undertake and achieve important milestones in the rollout program,” Smith said.
More specifically, WEX has renegotiated with key strategic vendors for the ability to process on their systems, and it has hired a significant number of local resources in Europe. “We’ve moved into our new headquarters building in the UK, and we are in the process of securing physical space in a number of other countries,” Smith said. “We’re on track to establish complete and fully functioning European operations on our timeline.”
The third phase marks the conversion of the ExxonMobil portfolio to WEX’s systems. Smith said she expects the conversion to begin in 2015 and to be completed in 2016, “which is also in line with our original expectations.”
WEX during the first half of this year is preparing for the conversion and finalization of the transaction. “Many of the more tangible milestones are expected to occur in the second half of the year,” as WEX Europe continues to build toward taking ownership of the portfolio, Smith said.
FleetCor’s Clarke, meanwhile, expects to complete the conversion of Shell’s private-label card business of smaller clients in Germany to FleetCor’s system by late summer, noting the deal could lead to more work with Shell over time. The company also signed a European framework agreement with Shell that outlines a broader expansion plan covering the potential acquisition of part of the oil company’s fuel card portfolios in up to 12 additional markets in continental Europe, including France, Poland and the Netherlands.
“These are big European markets and historically have been very difficult for us to gain access to,” Clarke said, noting much of the expansion will come as the companies overcome IT planning issues. “I would guess, probably a couple more markets later this year and then the balance in '15.”
Once in Germany, FleetCor will have a full base of operations to build out its product line and market reach over time, he added. “The announcement today may also serve as a catalyst to other European major oils who view this as further proof that FleetCor has the systems, the operational presence and, most importantly, the know-how to help them manage their fuel card portfolios.”
Asked why Shell chose to include only the SME card portfolio, Clarke noted he believes Shell likes to hold its larger account relationships closer. And, he said, “I think they view us as specialists in the small market, so I think those are a couple of reasons they started us here.”