Global Payments continues to spearhead a plan to divest certain parts of its business as part of a “transition,” and some analysts see its issuer segment as ripe for a sale or spin-off.
The Atlanta-based processor has so far divested about half of the $600 million in operational revenue that it has said it would shed in 2025 as part of a streamlining of the business that began last year. That included the $1.13 billion sale of its AdvancedMD software subsidiary last year.
After Global Payment’s fourth-quarter earnings report earlier this month, analysts at one firm urged the company to consider divesting the issuer segment, which provides software and other services to financial institutions. The analysts contended the segment would generate more value to the company through such a transaction.
“We assert that a private buyer would value issuer’s mid single-digit organic growth and nearly 50% EBITDA margin at a higher multiple than the public markets,” analysts at the investment firm William Blair said in a Feb. 13 note to clients.
The analysts made that recommendation while acknowledging the benefit of Global Payments having renewed 15 of its 20 contracts in recent years with the banks, credit unions and fintechs that it services in that segment.
That part of the Global Payments business accounted for about 25%, or $2.48 billion, of its annual revenue last year, according to the company’s annual filing with the Securities and Exchange Commission. Three-quarters of revenue, or $7.69 billion, derived from the processing and software services it provides through its merchant segment to retailers and other sellers.
In their note to investment clients, the William Blair analysts were direct in counseling the company, though they acknowledged their advice would likely be dismissed. “Global’s issuing business is a cash cow, in our opinion, and should be divested to drive shareholder value,” the analysts wrote.
Nonetheless, the William Blair analysts said they knew it might be a difficult decision. “We recognize this is a sensitive subject for the board and management, but we are adamant that an issuer sale or spinoff is the clearest shareholder value unlock, though currently view this as a low-probability outcome given that management is doubling down on its strategic initiatives,” the analysts wrote.
TD Cowen analysts touched on the same theme in a note the same day, commenting on Global Payments executives not addressing the issue during a webcast to discuss earnings results and the outlook for this year.
“While a potential spin-out of Issuer was not addressed, we think it becomes more possible as it comes out of its modernization program and macro headwinds abate, leaving it a higher growth / higher multiple candidate,” the TD Cowen analysts wrote.
Global Payments reported net income rose about 60% last year over 2023 to $1.57 billion as revenue increased 5% to $10.1 billion. Fourth-quarter net income rose 57% to $567.2 million as revenue climbed 3.4% to $2.5 billion. The quarterly results were below some analysts’ expectations.
Analysts at Mizuho Securities called the fourth-quarter results “largely disappointing,” noting that the company’s results in the merchant segment could reflect a “weakening competitive position.” Last year, those analysts also suggested the company might be better off selling the issuer segment, which they noted is “a clear market leader,” unlike the merchant segment, which they asserted is losing market share to competitors.
Global Payments provides services internationally and operates in a competitive market, battling large legacy players and upstart fintechs alike, in both of its segments, including Fiserv, Fidelity National Information Services and Worldpay, as well as Toast, Stripe, Adyen, Square and Block.
As part of its transition agenda, the company has been trying to revamp its market approach in the merchant segment by bringing a pack of formerly varied point-of-sale brands under one common name, Genius.
Aside from the transition plans, the William Blair analysts view Global Payments as hard-pressed to fend off competitors, particularly in the merchant segment.
The William Blair analysts, who have a “market perform” rating on Global Payments, said that stronger growth in the merchant segment of the company’s business will be necessary to “right this ship.” While they advocated a sale of the issuer business, they also wondered how the company will bolster revenue in the future if it keeps selling “faster-growing vertical software assets,” unless it makes some acquisitions of its own.
“Global will struggle to materially accelerate merchant segment organic revenue growth, driven by stiff competition from software-integrated leaders,” the William Blair analysts predicted.
A spokesperson for Global Payments declined to comment, but referred to a statement from last September on the topic that said the company’s issuer segment is “capitalizing on meaningful growth opportunities through our cloud modernization and cross-selling initiatives, while also leveraging the strategic value of this business to extend our capabilities across the payments value chain.”
“We will continue to explore and evaluate options for the Issuer business that may serve to achieve our strategic objectives and accelerate value creation for shareholders,” the Global Payments statement added.
