When corporate payments firm WEX, known best for its fuel card services, announced this month it struck a $1.1 billion deal to acquire peer Electronic Funds Source, the fleet industry perked up. As gas prices decline and fleet card technology evolves, WEX’s buyout of EFS could mean big things for the market.
That’s why MPD CEO Karen Webster caught up with WEX CEO Melissa Smith to discuss the takeover, as well as WEX’s overall acquisition strategy, which has recently included action in a space for which WEX is less well-known: health care payments. Read what Smith had to say about the acquisitions of EFS as well as health care payments firm Benaissance, below.
Karen Webster: The big news is the acquisition of Electronic Funds Source. There are many reasons why one sitting from the outside looking in would speculate that you were interested in the takeover, but I’d love to hear, in your words, why you pursued this deal.
Melissa Smith: There really are three reasons. The first is that we really thought it was a good thing from a customer perspective. We had been concentrated in the over-the-road fleet market focused on smaller-sized fleets. If you look across the spectrum of our business, we were really servicing every other part of the fleet portfolio. This takeover enabled us to enter into the markets of midsized and large over-the-road vehicle fleets – it really was a compliment. When we first stated looking at this, we had some preconceived notions; but what we found was that the businesses really were complementary, and much more so than we had imagined. That was true not just on the fleet business side, but also on the corporate payments side. EFS has been really focused around electronic accounts payable products, and we’re focused on card products, and looking at these two businesses together they fit together nicely.
No. 2 for us was around scale. Our fleet businesses tend to draw up a lot of cash, and to accumulate the two businesses together, it creates a great amount of scale in the marketplace. The third are the synergies. We have overlapping costs, so we thought of this as a way to create value for our shareholders.
KW: One of the things that comes out of all of these transactions, especially when you’re looking at a particular vertical and when payments is involved, is data. Is that – the ability to use data – No. 4?
MS: An underlying value proposition, particularly to large fleets, is more data-intensive. As you go into the larger over-the-road customers, you have a higher level of control, and of data analytics that occur naturally. That’s if you’re dealing with light trucks, vans, or almost any type of fleet regardless of size. The level of sophistication has to increase with larger-sized fleets, and typically you end up with more data, with fleet managers looking for more sophisticated tools.
[bctt tweet="An underlying value proposition, particularly to large fleets, is more data-intensive"]
In many ways, we say, we’ve been doing data analytics since before it was cool. It’s a byproduct of what we do. Our customers want to be able to capture information and be sure there isn’t misuse of a card. The data we give people, and the control restrictions they choose to put on their fleet drivers’ behavior, is highly customized. Some people want to have a lot of upfront control and block a lot of behavior. Others want to give drivers more flexibility, but see reports or get messages sent to them on activity that is outside the norm.
KW: The SecureFuel element of EFS reminds me of SAP’s Vehicles Network, which is trying to enable customers to have connected cards that alert them to problems, if they’re low on fuel, direct them to the nearest gas station, and so on. It seems like that’s a capability which, certainly from a fleet perspective, seems like it has a lot of potential.
MS: There are two elements of this that are important from a customer perspective. When you get more sophisticated customers, they want something that’s integrated when it comes to payments. That means, in a B2B portfolio, that there is a heavy level of integration within their backend systems so things operate seamlessly. The second part is the ability to identify outliers in the over-the-road products. One feature that makes fleet unique to the rest of a business is that it tends to be more cash-based, and requires the ability to push money to a driver. It’s more important than what you would see in other parts of a business. So that dynamic capability is also a piece of what makes this work – the information has to be able to move on a real-time basis.
[bctt tweet="More sophisticated customers want something that’s integrated when it comes to payments"]
KW: Of course, anytime there’s an acquisition, people want to know: what’s going to change for either company? You described the deal as complementary, but do you see areas of overlap that need to be addressed?
MS: The overlap for us creates the synergies. There are definitely areas of overlap – combined, we have about $6 million in operating costs. We think there is about $25 million worth of synergies that we can pull out of that. There are certain things you would describe as more overhead, like contracts we both have that are similar in nature. Those are the types of things that we are looking at for efficiencies across the portfolio. Whenever we do an acquisition, a lot of what we think about is the human side of it, and we make sure that there is an alignment of cultural values through the integration process.
KW: We turn from fleet to health care, a very different business, where you have also made acquisitions. Can you talk to us a bit about the importance of health care with respect to WEX?
MS: When we entered the health care market, we were interested in its highest levels. What we’re good at is taking the complexity out of complicated payments. We did that in fleet and travel; health care might be, of all the markets, the most complicated. What we liked about [health care payment firm] Evolution1, which we purchased a year ago, is the brand they had in the marketplace. We felt like that was something missing for us. Their business is highly technical in the way they distribute their model to partners, who can then go out and help people capture their health care costs. That business has been really good for us, and continues to grow. It opened up a $1 billion marketplace for us when we enterd into that portfolio. Because we’ve had a good experience, we were looking at ways we could extend the relationship they have in the marketplace.
What Benaissance does is by integrating into the billing app you’re taking advantage of the partner relationships they already have and being able to extend more products and value to those partners. To some extent, it’s a bit of a play of what’s happening within the private exchange growth you’re seeing. Their billing products work well when you have defined contribution programs in place. You see more of a move to introduce consumer-directed health care payments and programs that put more control in the hands of employees, like with defined contribution plans. Benaissance is really well-positioned in that marketplace to meet those kinds of needs.
KW: What is the most complicated part of being in the health care payments space?
MS: There are a lot of players in the space. One of the most complicating parts is that you’ve got such a big ecosystem with a lot of different people involved in it. As a result you see consolidation, and it's changing rapidly, beyond what we see in other markets, where a piece of the change is technology-driven. In this market, a piece of the change is the ecosystem and its continuing evolution.
KW: Is there a particular piece of enabling technology that is part of the WEX platform that you think can make the health care payments space, despite its complicated ecosystem, a bit easier to streamline? It is a very difficult ecosystem to navigate, because there’s this player that sends you a piece of information that you think is a bill, but isn’t actually a bill.
MS: Right, the explanation of benefits. To start with, Evolution1 helps determine what costs you can actually charge back to your account. In that side of our business, they take the complexity around the decision process of, "what can I do, and what can I not do?" and simplify that as much as possible. To be able to show information around the different places where people are spending their health care money, that’s been a focus of ours.