the changing shaping of gateway ownership€¦ · sources: company information, ecb, national...

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The Changing Shaping of Gateway Ownership A M&A Perspective

Brussels, 23rd May 2017

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The information given is confidential and is not to be circulated to any person or entity without the consent of Corestar Partners (“CP”, “Corestar”, “CorestarPartners”). The information and opinions presented here have been obtained or derived from sources believed by CP to be reliable at the date of publication of this report. No representations are made as to their accuracy or completeness and they are subject to change without notice. CP accepts no liability for loss arising from the use of the figures presented. This material is not to be relied upon in substitution for the exercise of independent judgement.

Strictly Private and Confidential

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Agenda

Section

1. Corestar Partners

2. Evolution of Capital

3. Accelerated Changing in Ownership, Why?

a. Attractive Underlying Market Dynamics

b. Favourable Funding Environment

c. Synergies and Other Potentials

d. High Levels of Cash Conversion

e. Attractive Exit Options

4. Conclusions

5. Appendix

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Section 1

Corestar Partners

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Corestar Partners

▪ Corestar Partners is an independent investment banking boutique focused on the Payment Service / FinTech Industry

▪ Corestar was founded in 2013 and is the first and only investment banking boutique focused exclusively on the Payment Service / FinTech Industry in Europe

▪ The exclusive focus on the Payment Service / FinTech Sector provides Corestar with an unique knowledge and experience of companies, investors and transactions within this industry

▪ Our goal is to provide high quality independent advice, based on deep industry expertise combined with strong execution skills, to Payment Service Companies and Investors

▪ This positioning combined with the team’s track record of executing deals in the Payment Service Industry endows Corestar to serve payment companies with national and international growth ambitions

▪ The company has offices in Switzerland (Zug / Zurich) and Germany (Frankfurt), and provides Corporate Finance advisory services with a focus on Mergers & Acquisitions and Private Equity/ Venture Capital Placements

▪ To date, Corestar has advised on most relevant payment services transactions in Europe on the buy- or sell-side

At a Glance

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Team Present

Milan Bartik

Managing Partner

M +41 79 949 4276E [email protected]

▪ Over 19 years experience in Investment Banking/ Corporate Finance with Corestar Partners, NIBC Bank, Deutsche Bank and Arthur Andersen

▪ Before founding Corestar Partners, Milan served as Head of Financial Sponsors Group and Payment Services for NIBC Bank, where he covered European Payment companies and Financial Sponsors

▪ He advised numerous Corporate and Financial Sponsors clients on strategic assignments in the payment industry

▪ Recent mandates include amongst others Concardis, Heidelpay, UPG, milliPay, GFKL, Crossinx, PayCo, Samport, Euroline, Sofort, Klarna, Skrill, Point, Wirecard, Skrill, Montrada, Hi-media, Loyalty Partner, RBS worldpay, Ogone, Global Collect, Easycash

▪ Master of Science in Finance from University of Leicester, UK

Dr. Clemens Hisch

Partner

M +41 79 574 6340E [email protected]

▪ Over 12 years of experience in Investment Banking/Mergers & Acquisitions with Corestar Partners, NIBC Bank, Jefferies and UniCredit

▪ Before co-founding Corestar Partners, Clemens covered mid cap financial sponsors / venture funds and launched the venture capital advisory business for NIBC Bank

▪ He advised numerous Corporate and Financial Sponsors clients on various buy-/sell-side M&A and capital raising mandates

▪ Recent mandates include amongst others Concardis, Heidelpay, UPG, milliPay, GFKL, Crossinx, PayCo, Samport, Euroline, Sofort, Klarna, Skrill, Paylife, Point, Prosol Invest, Point, Constantia Privatbank, Constantia Packaging and Card Complete

▪ PhD and Masters Degree in International Business Administration from Vienna University of Economics and Business, Vienna, Austria

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Section 2

Evolution of Capital

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Terminology

Bootstrapping▪ Founder attempts to found and build a company from personal

finances or from the operating revenues of the new company

▪ Founder

▪ Initial Team

Seed Capital

▪ Company insiders provide start-up capital

▪ Money used for the initial investment for proof-of-concept, market research, or initial product development also called seed financing or seed money

▪ Friends and Family

▪ Business Angels

Public Finance / Capital

▪ Public offering of the company

▪ Proceeds used both for expansion and cash-out of existing shareholders

▪ Institutional Fund Investors

▪ Retail Investors

Terminology InvestorsPurpose / Meaning

Series A-D

▪ First time that company ownership is offered to external investors

▪ The company is generating some revenue from its business model, but rarely will the business be generating net profits at this point.

▪ Business Angels

▪ Venture Capital Funds, e.g.:

Sources: Corestar research and analysis

Growth Capital

▪ Flexible type of financing used to finance the expansion and growth of a business

▪ Private equity investment, usually a minority (but sometimes a majority) investment, in relatively mature companies

▪ Proceeds used to expand operations, enter new markets or finance a significant acquisition without a change of control of the business

▪ Growth (Private) Equity Funds, e.g.:

http://www.crunchbase.com/financial-organization/battery-ventures

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Excursus: Financial Sponsors and Gateway Businesses

Growth

Buy-out

Early Stage

Stage Characteristics Examples

▪ Anacap investing in Heidelpay

▪ Iconiq investing in Adyen

▪ Northzone and Wellington investing in Klarna

▪ Summit Partners investing in Ogone

▪ Bain Capital / Advent International acquiring

Concardis

ICBPI

Nets

Vantiv

▪ Index Ventures investing in Adyen

▪ Various A, B and C rounds of payment service start-up companies

▪ Typically backed by growth equity funds

▪ Combination of primary and secondary capital; can be majority or minority deals

▪ Capital committed to accelerating growth of already strong growing businesses, either organically or via M&A

▪ Strong emphasis on management or founders

▪ Typically backed by larger buyout funds

▪ Secondary capital to existing shareholders

▪ Additional capital committed to further grow the business (consolidation plays, technology or geographic expansion

▪ Strong emphasis on incentivising management

▪ Typically backed by VC firms

▪ Primarily primary capital to be deployed for rolling out developed technology

▪ Usually minority stakes sought, with strong emphasis on founders

Typical Exit Routes

▪ Trade sale

▪ Secondary

▪ IPO

▪ Trade sale

▪ Recap

▪ IPO

▪ Trade sale

▪ Secondary


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Evolution of OwnershipOverview of Different Funding Stages

Ente

rpri

se V

alu

e

Time

Shareholding of Founder(s)

Founder(s)Founder(s) & Minority Shareholders (Angels)

Seed & Angel Rounds

Founder(s) & Minority/ Majority Shareholders (Angels, VCs, Growth

Funds) & Management

Venture & Growth Equity

Rounds

Founder(s) & Management & Other Shareholders

Private Equity

Trade Sale

IPO

Various Exit

Routes

PE (Secondary)

Trade Sale

IPO

Divesture (e.g. Digital River)

PTO to PE (e.g. First Data)


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Highly Active M&A Market in Online and Mobile Payments

Selected Recent M&A Transactions and Private Placements in the Online and Mobile Payment Services Space

Sources: Company Information, CapitalIQ, Corestar research and analysis

Date Mar-17 Feb-17 Jan-17 Nov-15 Sep-15 Aug-15 Jul-15 Mar-15 Mar-15

Acquirer

Target(minority

stake)(minority

stake)

Target Description

Germany based invoice based online

payment services provider

Germany based invoice based online


Germany based online


Germany based

platform provider for omnichannel

PSPs

NL based online


Sweden based invoice based

online payment solutions provider

US based online money

remittance business

Ireland based online

payment solutions provider

UK based online

payment solutions provider

non-exhaustive

Highly active M&A market, driven by strategic investors as well as financial sponsors

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Section 2

Accelerated Changing in Ownership, Why?

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Sub-Section a

Attractive Underlying Market Dynamics

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83

%

76

%

72

%

69

%

53

%

48

%

46

%

41

%

23

%

23

%

22

%

22

%

22

%

21

%

17

%

23

%

28

%

29

%

28

%

52

%

52

%

57

%

74

%

76

%

78

%

76

%

78

%

70

%

20

% 10

%

Sweden Iceland Holland UK France Croatia EU Germany Spain Hungary Poland CzechRep.

CEE Italy

Cards Cash Others¹

Retail Payment Methods Vary Widely Across Europe …

Sources: Company Information, Euromontior

Notes: 1) Others include checks, gift cards, and other payments (e.g. smartphone proximity payments)

2) CEE includes Poland, Czech Republic, Slovakia, Hungary, Slovenia, Croatia, Romania and Bulgaria

Retail payment methods vary widely across Europe, implying significant growth potential for card payments especially in markets currently still showing high cash use

Retail Payment Mix in Europe

CEE²

% C2B retail turnover; all channels; 2015 estimates

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…With Card Based Payments Showing Highest Growth Rates

Development of Payments in Europe1

0

5

10

15

20

25

30

35

40

45

2011 2012 2013 2014 2015

CAGR 2011 – 2015

Debit Cards Credit Cards ATM Transactions ACH Transactions Cheques

1%

# Transactions (bn)

Sources: Company Information, Euromontior

Notes: 1) 25 western European countries

Card based payments show highest growth rates, while legacy payment methods continue to erode

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e/m-Commerce Payment Methods Overview

6% 9

%

7% 1

7%

47

%

36

%

71

%

29

%

17

% 12

% 7%

5%

13

%

21

%

7%

14

%

15

%

14

%

7%

26

%

28

%

12

%

22

%

5%

8%

14

%

8%

15

%

12

%

27

% 35

%

6%

10

%

64

%

43

%

84

% 79

%

77

% 70

% 61

%

59

%

45

% 35

%

34

% 26

% 21

%

18

%

16

% 11

%

Iceland UK France Spain Norway Europe Italy CEE Sweden Czech Rep. Germany Hungary Netherlands Poland

Other Cash Wallet Invoice Direct Debit Bank Transfer Cards

Payment patterns, and the means of payment, vary widely across Europe

Especially Nordic countries showing highest non-cash adoption

Sources: Company Information, Euromonitor, ECB, National Banks and Banking Associations

Notes: 1) CEE includes Poland, Czech Republic, Slovakia, Hungary, Slovenia, Croatia, Romania and Bulgaria

e/m-Commerce Payment Mix in Europe

CEE1

% C2B e/m-commerce transactions; 2015 estimates

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Development of Non-Cash Payments

UK remain largest and fastest growing e/m-commerce market in Europe, followed by France and Germany

Sources: Company Information, ECB, National Banks, Local Card and e-Commerce associations

Development of e/m-Commerce Payments in Europe

bubble size = 2015 e/m-commerce payment turnover

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0% 5% 10% 15% 20% 25%

e/m

-Co

mm

erce

Pen

etra

tio

n(2

01

5 e

/m-c

om

mer

ce t

urn

ove

r as

% c

on

sum

er e

xpen

dit

ure

)

e/m-Commerce Growth(2011-2015 CAGR in e/m-commerce turnover)

FranceNetherlands

Denmark

SwedenNorwayFinland

RussiaItaly

Portugal

Switzerland

GreeceRomania

SpainPolandLuxembourg

Czech Rep.

Belgium

AustriaGermany

Iceland

Hungary

U.K.

Slovakia

CroatiaSlovenia

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Sub-Section b

Favorable Funding Environment

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FinTech Funding by Funds Raised in 2016

Payments38%

Banking / Lending26%

Wealth Mgmgt.13%

Financial Mgmt. Solutions

12%

FinHCIT6%

Insurance4%

Financial BPO1%

Sources: FT Partners, Corestar research and analysis

$36bn in financing across over 1,500 funding deals from over 1,700 unique investors (not taking into account M&A deals); Payments being the most active sub-sector

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15 Largest FinTech Financing Deals in 2016 ($m)

310 315 327 400 400 449 5001000 1200

15002000

2370

3300

4500

The third largest FinTech financing in 2016 went to Nordic payments firm Nets A/S, which started trading at the end of September in Copenhagen after its shares were oversubscribed in an initial public offering. The

IPO valued the company at $4.5bn, with 52% of the firm in free float. That made it the second-largest listing in Europe as of September 2016 after the sale raised approximately $2.37bn

Sources: FT Partners, Corestar research and analysis

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Sub-Section c

Synergies and Other Potentials

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Why are They so Interested?

Strategic Investors Financial Sponsors

Key Drivers forAcquisitions

▪ Strategic players seeking

Complementary new technology – In case they do not have their own platform (e.g. acquirers)

Merchant base – In order to further scaletheir business and generate revenue and cost synergies (e.g. acquirers, full service PSPs)

▪ Financial sponsors seeking high quality assets yielding superior returns, with

Sticky client relationships

(Strong) underlying market growth

Consolidation plays (e.g. Bain Capital / Advent International with Concardis, Nordic Capital with Bambora, etc.)

End Game

▪ Platforms for future growth, both organically, as well as via

▪ M&A driven growth strategies

▪ High synergy potential

▪ Platforms for future growth, both organically, as well as via

▪ M&A driven growth strategies

▪ Operational improvement

▪ Full range of exit options (Trade sale, Secondary, IPO, Recap)

RecentTransactions

▪ Concardis (Bain/Advent) acquiring RatePay

▪ Klarna acquiring BillPay

▪ ACI Worldwide acquiring PAY.ON

▪ DSV acquiring PayOne

▪ Bain/Advent investing in Concardis

▪ AnaCap acquiring a majority stake in Heidelpay

▪ Iconiq investing in Adyen

▪ Northzone and Wellington investing in Klarna


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Excursus: How Strategic Investors Generate Value

Strategic investors generate value by

▪ Organically: Top line synergies (cross- and up-selling)

▪ Acquisitive: Complementary step-stone acquisitions (technology or client driven)

▪ Cost synergies (reduced overhead, streamlined organisations)

▪ Economies of scale

▪ Utilising excess cash to fund acquisitions

▪ Tap attractive debt markets

▪ Increasing EPS by paying accretive acquisition prices

Bu

sin

ess

Dri

ven

Top Line Growth

Optimising Profitability

Fin

anci

al E

ngi

nee

rin

g Accretion

Financing


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Excursus: How Financial Sponsors Generate Value

Private Equity investors generate value by

▪ Organically: Regional expansion, product development, cross selling

▪ Acquisitive: Add-on acquisitions

▪ Reducing costs through efficiency improvements

▪ Capturing synergies within organizations

▪ Achieve higher exit multiple than entry multiple

▪ Reasons: More attractive business at exit (larger size, higher growth, higher profitability)

▪ Pay-off of acquisition debt with cash flow

▪ Increase equity value

Bu

sin

ess

Dri

ven

Top Line Growth

Optimising Profitability

Fin

anci

al E

ngi

ne

erin

g Deleveraging

Multiple Expansion


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Sub-Section d

High Levels of Cash Conversion

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High Levels of Cash Conversion

On average payment companies have a 10% higher cash conversion compared to the S&P 500 index

Cash Flow Conversion: Selected Public Payment Services Companies vs. S&P 500

Sources:Capital IQ, Corestar research and analysis

Note: Data based on CY2016 for selected listed

MedianPayments

Processors/Acquirers

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Sub-Section e

Attractive Exit Options

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Excursus: Exit Options for Financial Sponsors

▪ Private equity investors are exit driven investors, as their return on investment is primarily driven by exit proceeds

▪ Availability of multiple exit / value creation options is a key investment criterion

▪ Typically, there are four ways for private equity investors to monetise an investment

▪ Examples:

Sale of Paymetric to Vantiv by Francisco Partners in Apr. 2017

Sale of Transfirst to TSYS by Vista Equity Partners in Jan. 2016

Sale of TNS to DataCash/MasterCard by Siris in Nov. 2014

Sale of Global Collect to Ingenico by Welsh, Carson in Oct. 2014

Sale of Ogone to Ingenico by Summit Partners in Jan. 2013

▪ Leveraged recapitalisation

▪ Usually done once initial acquisition debt has been paid down substantially

▪ Equity offering

▪ Examples:

First Data, nets, Worldpay, Vantiv, Evertec, etc.

▪ Sale to (another) financial sponsor

▪ Examples:

Sale of Skrill to Paysafe Group by CVC in Mar. 2017

Sale of Global Collect to Welsh, Carson by General Atlantic in Apr. 2010

Sale of Global Collect to General Atlantic by Waterland in Jul. 2007

Trade Sale

Secondary / Tertiary Buyout

Refinancing

IPO


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Trade Sale

Sources: Company Information, Corestar research and analysis

Payment Services Industry ConsolidationThe recent consolidation has moved the payment processors and acquirers closer to the merchant (i.e. “own the merchant”)

Current focus is to have a multi-service offering including online and alternative payment solutions

IssuerIssuer /

ProcessorNetwork

Acquirer / Processor

Point of Sale & Gateways

MerchantStrategic Rationale

▪ Get direct access to merchants in order offer “one-stop-shop solution”

▪ Drive growth of e-/m-commerce together with acquirer relationships

▪ Expand and enhance existing solutions to provide merchants with new market reach / service offerings

▪ Leverage network and global presence to expand adoption of new products and services

▪ Combine fraud capabilities and expertise resulting in “end-to-end” fraud screening and management services

▪ Deliver new generation of e-/m-commerceNov-11

Jan-13

Sep-14

Oct-14

Jan-13

Nov-14

Nov-14

Aug-14

May-14

non-exhaustive

Mar-17

Dec-16

Dec-14

Mar-15

Nov-14

Jan-16

Jun-15Acquiring

Dec-15

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IPOs

▪ IPOs are a viable exit option for payment assets

▪ Payment assets to date have yielded a very attractive trading performance

▪ Multiples achieved in IPOs can be very attractive

Attractive ExiitOption

IPO Pipeline

▪ Recent IPOs:

Recent IPOs of Payment Assets


▪ IPO pipeline for payment assets is full

▪ Rumoured IPOs in the industry include:

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IPOs: Performance of Selected Recent Payment IPOs

Recent IPOs in payment services show an attractive performance

To date, average performance of recent payment processing / acquiring IPOs of +60%

Sources:Capital IQ, Corestar research and analysis

Stock Market Performance of Selected Recently Floated Payment Service Providers

Average performance since listing: +60%

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Section 4

Conclusions

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Conclusions – Gateway Businesses Are Highly Attractive!

▪ Merchant facing payment assets continue to be of high interest to strategics as well as financial sponsors

▪ Such assets tick many boxes for both strategic investor and financial sponsor investment criteria:

– Attractive growth outlook

– Synergy potential

– High cash conversion

– Diversified and sticky customer base

– Full range of exit options

▪ Recently, hybrids of sponsor backed strategics are aggressively consolidating the market

▪ Prices continue to increase from an already high level, reflecting the infrastructure-like nature of the assets

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Q&A

the changing shaping of gateway ownership€¦ · sources: company information, ecb, national...

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