May 15, 2018 / 5:47 AM / 11 days ago

Worldline's $2.75 billion deal for SIX Payment Services sets stage for more consolidation

ZURICH/PARIS (Reuters) - Worldline’s (WLN.PA) $2.75 billion deal to buy the payments unit of Swiss exchange operator SIX Group, announced on Tuesday, could herald more consolidation in the industry, SIX’s chairman told Reuters.

France’s Worldline beat competition from U.S. bidders to land the SIX business, reflecting a drive by financial sector companies to gain scale to benefit from the shift towards electronic and online payments.

As part of the arrangement, SIX will get a 27 percent stake and two board seats in the French company, which paid for most of the purchase with 49 million new shares.

“We believe that this will be a landmark deal in Europe and in different countries and regions and further consolidation will occur as domestic markets break up,” SIX Chairman Romeo Lacher said in an interview, adding that the merged company would be well placed to lead the charge.

The payment processing business relied on scale, he said, with size increasingly important because of the need to invest in technology and innovation.

Other recent M&A activity in the sector include the multi-billion pound sale of Britain’s Worldpay and Paysafe last year.

SIX’s payments business is the market leader in Switzerland, Austria and Luxembourg, helping process payments and providing debit and credit card terminals to retailers, restaurants and hotels.

Worldline said in a presentation that it would have more than 2 billion euros ($2.4 billion) to spend on deals by the end of 2019 to “further consolidate the European payment market”.

“That means we have an extreme amount of firepower to drive consolidation in Europe if it goes down the M&A track,” Lacher said.

POTENTIAL TARGETS

For decades, payments firms existed as a backwater in the banking landscape. Usually set up by banks, they enjoyed a cosy relationship with them as customers but had little funds at their disposal to invest in technology.

As well as investing in innovation, payments companies now also need scale to navigate increasing regulatory complexity.

Smaller companies like SIA (IPO-SIA.MI) in Italy or Germany’s Concardis could be among the targets for larger industry players, while banks could be tempted to sell off their payments services to raise cash, analysts say.

Potential targets could include the payment services arms of France’s Credit Mutuel, Societe Generale (SOGN.PA) and Nataxis (CNAT.PA), or Spain’s Bankia (BKIA.MC), BBVA (BBVA.MC) or Sabadell (SABE.MC), according to analysts.

“They can hand it over to specialists with companies like Worldline who are particularly well positioned to make these acquisitions because of the flexibility they offer,” said Bob Liao at Macquarie.

“They can say to the bank: ‘We know this business is your baby and you don’t really want to give it up, but you cannot invest in it, so why not a joint venture or a shared ownership deal?’”

Other industry bidders could include France’s Ingenico (INGC.PA), while Denmark’s Nets (NTTSY.PK), owned by U.S. buyout fund Hellman & Friedman, could also enter future auctions.

Nets was one of the bidders that lost out to Worldline in the auction for SIX’s payment services business.

    Worldline, which is 51 percent owned by Atos (ATOS.PA), will pay 283 million euros in cash on top of the new shares to acquire the business.

    Editing by Sherry Jacob-Phillips and Susan Fenton

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