Perhaps no payments industry segment has been as active recently as fleet cards, with two of the industry leaders, FleetCor Technologies and Wex, duking out it through company and contract acquisitions and diversification into new markets. Demand, it appears, is strong for B2B specialists who can accommodate fleet-management needs.
Competition came to a head most recently when FleetCor earlier this month announced its plans to acquire Comdata, itself a leading fleet card provider but with a broader array of products and services. With a $3.45 billion price tag, FleetCor acquired a company that granted entry for the company into such new markets as health care and virtual cards, emerging areas also of interest to rival Wex Inc.
Wex, the smaller company with $717.5 million in 2013 revenues compared with FleetCor’s $895.2 million, ventured into the health care market with virtual cards used to accommodate online health care adjudication claims in June of last year, bolstered by its partnership with Alegeus Technologies. It introduced Wex Health so after announcing the deal. In June is bolstered its position in health care with its acquisition of Evolution1 for $532.5 million in cash.
Wex traditionally has focused on virtual card products, bolstered by a recent strategic agreement with Conferma, a European provider of virtual card number technology for corporate travel and expense, for payer-to-provider payments. Through Evolution1, it intends to build on its existing B2B business model, providing payment services to intermediaries such as exchanges and third-party administrators that have direct contact with consumers. Evolution1 has an addressable market of more than $1 billion in revenue with a meaningful and growing market share position. This market opportunity is expected to double by 2019, the companies said.
Virtual cards are at the core of helping third party administrators in particular to streamline their payment processes with health care providers, including physicians, hospitals and clinics. They help take out costly and time-consuming paper from the invoicing process and speed up time of payment.
When he discussed the Comdata acquisition with analysts recently, FleetCor Chairman and CEO Ron Clarke noted the deal adds four new segments where Fleetcor previously didn’t operate: an on-the-road trucking business, where Comdata is the market leader with its proprietary fuel card and cash-disbursement services; a national accounts business, where Comdata provides a universal MasterCard to its clients; corporate payments, where Comdata has established a health care vertical and a virtual MasterCard payment program designed to help businesses simplify their payables-payment process; and SVS (Stored Value Systems), which specializes in global gift card processing and program management.
But it was the “attractive virtual card space, which is quite large and growing fast,” that Clarke acknowledged was the big gain for the company. “Comdata’s got a great position, great proprietary technology, a pretty unique vendor-enrollment model, and some great reseller relationships,” he said. “Comdata’s well positioned, and our view is this could mature into a very big—I mean very big—business over time. So in some ways for us, this line of business is really the crown jewel of the company.”
The health care and virtual card markets aside, where FleetCor and Wex truly compete is in the fleet card market. And that’s not just in the U.S. but in other regions as well. As the accompanying chart notes, bot companies have been busy the past few years lining up deals with fleet providers to manage and process their fuel cards.
And Europe has become the latest hotbed for competition between the two companies, though FleetCor’s Comdata acquisition surely will build on the rivalry domestically as well. Comdata brings scale, and that could reflect on Comdata’s ability to price its processing and cards perhaps lower than its competitors.
Armed with separate card-portfolio contracts with two major oil companies in Europe, Wex and FleetCor are striving to grow more fleet card processing business in the region.
On May 1, FleetCor announced it is acquiring Shell’s small and midsize enterprise fuel card portfolio in Germany. Last month, Wex completed its acquisition of 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 earlier this year. Similarly, Clarke, 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.”
Late last month, Clark mentioned that progress is ahead of schedule with Fleetcor’s deal to acquire Shell’s small and midsize enterprise fleet card accounts, starting in Germany and potentially including 12 additional Shell portfolios in European markets. Fleetcor is planning to convert the Shell Germany portfolio in September and launch simultaneous Web marketing and initial telesales efforts.
“We should be officially up and running in Germany and boarding new businesses this quarter,” Clark said. “Once we’ve proven our performance in Germany, we’ll work with Shell to finalize a time to roll out into additional markets. There could be another market or two before yearend.”
Looking at the two companies second quarter performance and what each released publicly, Wex’s total revenue increased 13 percent to $201.6
million, from $178.3 million. Total fuel transactions Wex processed increased 6 percent from a year earlier, to 98.6 million; payment processing transactions increased 6 percent to 78.4 million. Total corporate card purchase volume grew 36 percent, to $4.3 billion from $3.2 billion.
FleetCor generated net revenues of $273.5 million for the quarter, up 23.8 percent from $220.9 million a year earlier, driven by strong organic growth and the acquisitions it closed over the past years, according to the company’s 8K filing with the U.S. Securities and Exchange Commission. FleetCor’s North America transaction volume reached 42.7 million, up 3.9 percent from 41.1 million. International transaction volume was 47.5 million, up 25.7 percent from 37.8 million. Globally, transactions totaled 90.2 million, up 14.2 percent from 79 million.
Both companies are showing continued growth both in revenue and in processing volume, and the likelihood for that to change seems nonexistent at this point. Both continue to grow through acquisition and new business and market ventures, and that spells positive results for both Wex and FleetCor for years to come.