Dive Brief:

• Global Payments said in a press release today that it will pay a premium price of $4 billion to acquire industry peer Evo Payments, creating a combined operation with more worldwide reach and deeper penetration into the business-to-business segment.
• The acquisition will not only extend Global Payments’ reach into additional countries, such as Poland, Germany, Chile and Greece, it will strengthen its presence in others, the company said in the release. As Global Payments makes the acquisition to buttress its business-to-business strategy, it will sell off its Netspend consumer unit for $1 billion after saying in February it was looking to shed that asset.
• The two publicly-traded, Atlanta-based payments companies will service 4.5 million merchants and about 1,500 financial institutions globally after the deal is done early next year, the companies said. They expect $125 million in run-rate synergies, they said.

Dive Insight:

Global Payments signaled last year that it was shopping for a big acquisition as part of a major growth agenda. With the purchase of Evo it has delivered on that promise.

Global Payments provides its payments technology and processing services in 170 countries and on four continents, relying on 25,000 employees. The smaller Evo provides its payments acceptance technology and services to some 550,000 merchants in 50 markets worldwide, including small businesses and multinational companies, and the business has about 2,400 employees. 

Global Payments CEO Jeff Sloan will keep that title at the combined company, according to a spokesperson. As far as whether the company will cut employees as a result of the merger, the spokesperson declined to comment other than to say that until the transaction is complete, “the companies will continue to operate independently and it’s business as usual.” The transaction is expected to close in the first quarter of next year.

Global Payments agreed to pay $34 per share in cash as part of the acquisition so there won’t be a lot of movement in the price due to stock market volatility. The price provides Evo shareholders with a premium of about 24% on Evo’s Friday closing price and 40% on its 60-day average price, the release said.

The deal is subject to the approval of Evo shareholders, with an agreement already from the private equity firm Madison Dearborn Partners and some other investors to sell their shares, according to the release.

In conjunction with the acquisition, Global Payments said it would receive a $1.5 billion investment from the big private equity firm Silver Lake Partners by way of a convertible note. Typically, such a loan amounts to a debt that at least partially converts into owning a share of the company.

Global Payments also released its earnings report Monday for the second quarter, delivering a net loss of $673 million, compared to net income of $263.6 million for the quarter last year, according to a release on the results. Revenue rose 6.7% to $2.28 billion, from $2.14 billion. The company also posted a net loss for the first half of this year, following on profits in the prior three years.

Global Payments "is making a big acquisition while underlying fundamentals remain challenged," Mizuho Securities Analyst Dan Dolev and his associates said in a report today, regarding earnings and the transaction. "Will this help improve sentiment? We doubt it."

For the second quarter, adjustments to its sales, general and administrative expenses included an equity compensation expense of $47.0 million, acquisition and integration expenses of $61.8 million and other items of $8.5 million, the company said in a filing with the Securities and Exchange Commission.

The private equity firm Searchlight Capital and Austin, Texas-based payments products firm Rev Worldwide agreed to buy the Netspend consumer portfolio for $1 billion. Global Payments acquired the Netspend business in 2019 through its $21.5 billion acquisition of Total System Services, which had purchased the debit card company for $1.4 billion in 2013. 

The Netspend B2B assets that Global Payments plans to keep represent only about 15% of the Netspend business, executives told analysts on a webcast to discuss that prior announcement.

“Bottom line, despite all the bells & whistles and 'including this, excluding that' in the (earnings) presentation," earnings growth outlook remains unchanged, said the report from Mizuho, which has a “neutral” rating on the company. "We remain cautious."