In Wake of Vantiv for Worldpay, Europe Beckons?

Falling sterling and growing digital payments make not-so-strange bedfellows.

News that Worldpay has agreed, in principle, to a $9.9-billion deal to merge with Vantiv sets the stage for a cross-border deal that is truly cross border, crossing oceans and the Rubicon that is Brexit.

The question becomes:  What’s next?  Or rather:  Who’s next?

In the payments realm there’s been a bit of focus on the Alipay for MoneyGram deal, with its regulatory oversight of a transaction that would be truly global in scope.

Regulatory concerns have hinged on whether there is, may be, or could be risk to U.S. citizens’ data or national security.

In the case of the Vantiv for Worldpay merger, it would appear that concerns of that magnitude do not surround the deal. Think of it as an extension of brand and payment types and technology, and to some minds it is a natural fit.  The movement toward digital and mobile, cashless payments is an immutable one, and Worldpay, as you might know, provides payment processing for online and brick-and-mortar transactions in more than 140 countries.  The company has some enviable market share in its home base of Britain, where it processes about 40 percent of all retail transactions, The New York Times reported Wednesday – and in total processes about 36 million transactions daily.

For Vantiv there is value in going beyond the United States, boosting footprint and gaining scale.  There’s a slight ownership edge here, too, as Vantiv holders will boast a roughly 59 percent stake in the combined entity, which of course speaks to control over just where resources will be deployed, how and when.

Might there be a silver lining to the sterling silver’s … drop?  Well, consider the fact that if nothing else, Brexit is refocusing U.S. attention on Europe, with  the desire to gain a post, or perhaps outpost, in payments processing in the region.  In a brief mention in The Times, a slew of companies, such as Square and Stripe and Adyen have been eyeing expansion in payments processing.

Mull that trio, and one sticks out as a possible takeout candidate, at least in an echo of Wednesday’s action. Adyen operates in the Netherlands, which means that it has roots in the region. It is a privately held payments business that is (gulp, gasp) profitable and grew revenue at 99 percent annually, as measured in total 2016 gross sales at $727 million (net of transaction costs that tally was up 65 percent), as noted this year by Recode, profits nearly doubled to $87 million.

And as reported in this space, payments volumes were up 80 percent year over year.  The same currency tailwinds that have been in place for, and possibly helped spur, the Wednesday Vantiv deal are not in place for a U.S. company interested in Adyen.  The euro, after all, has been strengthening against the dollar.

But strategically, Adyen has as a main selling point the ability to handle transactions across several regions, and handle payments in volume across 100 currencies.  Consider too, that the company said last month that it had obtained a banking license, a pan-European one, that allows the firm to process merchant payments with speed, bypassing bank settlements.   The $2.3-billion valuation sported a few years ago may or may not be a yardstick by which to measure where a potential acquirer may find a price tag palatable … but then again, for a U.S. firm, Europe may be among the more desired payments frontiers.  After all, data released this week shows that, via the European eCommerce Report 2017, eCommerce activity was up 15 percent in the region in 2016, to $602 billion USD, or 30 percent of the global eCommerce market.  The forecast for this year calls for 14 percent growth.  The dominant countries here are the U.K., Germany and France, where, perhaps for U.S. payments firms a roadmap may be taking shape.