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How the private equity industry stole a march in European payments



Just over a decade ago, processing electronic payments was largely regarded as a dull back-office function, including by the banks that did it.

A deal this week to create one of Europe’s largest payments companies is a reminder of a group that took a very different view and stepped into reap the rewards: private equity firms.

Italian payments group Nexi acquired Danish rival Nets for €7.8bn, combining two businesses that began life in banks but were then carved out and run by buyout groups Advent, Bain Capital and Hellman & Friedman. Nexi snapped up Nets just weeks after striking a tie-up with domestic competitor Sia, a run of deals that will value the group at €22bn.

Payments companies help merchants accept in-store or online payments, charging a proportion of the value of each transaction. With the need to invest in technology creating high fixed costs, the payment sector’s model has unleashed a race for scale well suited to the dealmaking that underpins the private equity industry.

The pandemic has done little to cool the pace of acquisitions. Almost $32bn of transactions have been struck in the European payments industry this year, up from $8.5bn in the same period in 2019, according to Refinitiv.

The relentless acquisitions have helped catapult the market value of the payment industry’s biggest players, including newly expanded Nexi and French rival Worldline, above some European lenders, underlining how banks failed to capitalise on the opportunity.

Owning payment companies “has been one of private equity’s biggest investment successes”, said Charles Hayes, a partner at law firm Freshfields which has advised on several deals.

Nexi and Nets were not the private equity industry’s first foray into payments, and nor are buyout groups the only ones to have scrambled for a foothold in a fast-growing market. But their tangled history illustrates how private equity stepped in where many banks had failed to capitalise, just as ecommerce and digital payments took off.

Tangled history

In 2014, Advent and Bain snapped up Nets, itself forged five years earlier from the merger of two Nordic bank-owned payments groups. A year later, the firms, alongside the Italian private equity group Clessidra, bought Istituto Centrale delle Banche Popolari Italiane (ICBPI), founded shortly before the second world war by a group of Italian banks. They renamed it Nexi.

A dizzying whirlwind of takeovers, take-privates and listings was only just beginning for Nexi and Nets.

After listing in 2016, Nets was taken private the following year by a consortium led by Hellman & Friedman and including Advent and Bain. In 2018, Nets snapped up German payments group Concardis, also owned by Advent and Bain. Meanwhile, Nexi hoovered up a series of smaller payments groups before listing in what was Europe’s largest initial public offering of 2019.

How Nexi and Nets came together

“It has been an incredibly successful subsegment to focus on — definitely one of the most interesting we’ve seen in private equity,” said James Brocklebank, managing partner at Advent. “It’s a question of focus . . . banks recognise these are good businesses [but] are not necessarily in the best position to develop the technology and to spend the money on driving payments as its own profit centre.” 

The takeovers have left a legacy of relatively high debts. Nets’ net leverage is 4.8 times, and the combined group with Nexi and Sia will have 3.3 times, according to an investor presentation. After the Nets deal, 38 per cent of Nexi’s shares will be in public investors’ hands. Most of the remaining will be held by Cassa Depositi e Prestiti, the Italian government vehicle that backed Sia, as well as Advent, Bain and Hellman & Friedman. 

What few dispute is that the industry’s push into payments has been lucrative. Since 2008, buyout firms’ investment in the payments sector have returned 2.7 times the amount of equity invested, compared to 2.1 times for financial services deals and 2.3 times in technology, according to a report this year by management consultancy Bain & Company.

The aggressive inroads into the European payments industry by buyout firms was made possible by the Payment Services Directive, a 2009 piece of legislation from the European Commission that paved the way for non-banks to provide payments services.

The expansion has not been without controversy.

In 2010, private equity made its first major move into European payments. Advent and Bain Capital bought Royal Bank of Scotland’s payments business at a £2bn valuation after EU regulators forced the bank to sell the unit as a condition of its bailout during the financial crisis. 

By the time the business, renamed Worldpay, floated in London in 2015, it commanded a valuation of £6.3bn. Just two years later, US payments processor Vantiv swallowed it for £9.1bn. Based on Worldpay’s IPO valuation, the buyout firms made a return of 5.4 times the equity they invested, according to an analysis by Peter Morris, an associate scholar at Oxford university’s Saïd Business School. Advent and Bain declined to comment on the deal’s returns.

The giddy increase in Worldpay’s valuation led some politicians to complain that UK taxpayers suffered a raw deal in the original sale in 2010. Last year Natwest, until recently known as Royal Bank of Scotland, got back into the industry, launching a service enabling small businesses to accept card payments in-store or online.

European payments M&A has rocketed

Race for scale 

The race for scale is only intensifying — and not just among the industry’s private-equity backed groups. In February, Worldline agreed to buy rival Ingenico for €7.8bn. In the US, the $43bn acquisition of Worldpay by financial tech specialist Fidelity National Information Services in early 2019 prompted panicked rivals to get bigger still.

“The process of consolidation will continue,” said Luca Bassi, a managing director at Bain Capital who oversaw the Nexi deal and sits on the company’s board. “There are a lot of countries where banks haven’t sold out their business.” 

But this year has not been straightforward for the payments industry, with the fraud at German group Wirecard focusing regulators’ attention on the lighter-touch treatment the industry enjoys compared to banks.

At the same time, the economic disruption unleashed by the Covid-19 pandemic hit consumer spending, sending global revenues of payment groups tumbling by about 22 per cent between January and June, according to McKinsey — though industry executives insist a long-term shift towards online and contactless payments will ultimately offset that.

“The only thing that’s bad for us is payments in cash,” said Mr Bassi. While some electronic payments generate higher fees than others, he said, “everything where cash isn’t there, is good.”

In Nexi’s home market of Italy, for example, electronic payments represent only 25 per cent of all transactions, and Rome has recently vowed to fight tax evasion by encouraging digital payments. 

The buyout groups will probably sell down their stakes in the new Nexi business over the next few years. As they do, the payments industry that disrupted the banks is facing a fresh threat of its own: the prospect of a technology giant launching a global rival that, like China’s Alipay, offers merchants lower fees — or could cut out the intermediary altogether.

That is “a massive risk,” said one private equity dealmaker who specialises in financial services but has not invested in the payments industry.

“Nobody really knows where payments is headed — will it be in the cloud, or over blockchain?” he added. “Everybody is trying to get as big as possible so they can influence where payments ultimately ends up.”


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How Jennifer Granholm will reshape the US Department of Energy




Two things to start: ExxonMobil appointed two new directors to its board, its latest effort to placate activist shareholders. And Texas’s largest power co-op Brazos Electric went bust yesterday, as the financial damage from the arctic storm continues to mount.

Oh, and after the hiatus caused by the pandemic, energy-related emissions are rising again, according to the International Energy Agency. They were higher in December than a year previously, the agency said.

Welcome to another Energy Source. Our main item today is on Jennifer Granholm, whom the US Senate last week confirmed as the country’s new energy secretary. Myles McCormick reports on her plan to revitalise her department and reorient it towards clean energy.

Thanks for reading. Please get in touch at You can sign up for the newsletter here. — Derek

Granholm looks to reboot the Department of Energy

From scuppering the Keystone XL pipeline to freezing the allocation of new drilling leases on public lands, Joe Biden’s plans to shake up the American energy system are well under way.

Next on the president’s agenda is an overhaul of the sprawling leviathan that is the US Department of Energy. And the woman that will lead that process is now in situ.

Jennifer Granholm, a former two-term governor of Michigan, took the reins of the $35bn a year government agency five days ago. And already it is clear there will be a shift in its focus — away from promoting fossil fuel exports and towards driving innovation in clean energy and climate technology.

This is what Granholm wrote in a blog post last Thursday, her first day on the job:

“President Biden has tasked the Department, his in-house solutions powerhouse, with delivering a cornerstone of his bold plan: the goal of achieving net-zero carbon emissions by 2050. For DoE, that means developing and deploying the technologies that will deliver a clean energy revolution.”

That will require a shift in priorities at the “in-house solutions powerhouse” — but one that analysts said Granholm was well suited to execute.

“She understands the economic benefits of transforming the agency into the Department of Clean Energy,” said Mitch Bernard, president of the Natural Resources Defense Council.

Jennifer Granholm was sworn in as energy secretary on February 25 © Getty Images

What can the DoE actually do on climate?

American energy policy is divvied up among several government agencies, of which the Department of Energy is just one. Traditionally its primary responsibilities have been the US nuclear weapons programme, environmental clean-ups and scientific research and development through its oversight of the country’s national laboratories.

Despite the department’s name, Granholm’s ability to effect the Biden climate agenda is constrained. She does not have oversight of emissions targets (which fall to the Environmental Protection Agency) or oil and gas drilling licences (the Department of the Interior).

“I do think the DoE’s ability to advance climate goals is fairly limited,” Nader Sobhani, climate policy associate at the Niskanen Center, told ES.

But what it can do is reinvigorate the department’s R&D role.

“I think there will certainly be a shift in the programmatic focus of this DoE as compared to the previous administration, in that there will be a concerted effort to innovate, develop and deploy clean energy technologies that are critical to combating climate change,” said Sobhani.

That means driving forward research on carbon capture and storage, electric vehicle charging infrastructure, energy storage technology and zero-carbon fuels such as green hydrogen.

How will it set about doing this? The department has a few tools in its toolkit:

  • There are the 17 national laboratories, which are hotbeds for tech breakthroughs.

  • There are grant and loan programmes it can use to drive innovation and de-risk new technologies to coax in private sector investment. Granholm has already indicated she will restart a $40bn loan programme that was left untouched by the Trump administration.

  • Plus, it has regulatory authority to encourage energy efficiency in certain appliances and new transmission lines.

But all of this will require funding. While Congress ensured the agency was not financially gutted by the last administration, ramping up its R&D role will require more money. Biden has pledged $400bn over the next ten years for clean energy and innovation.

Granholm’s record on spending big — sometimes without the desired effect — has already sparked criticism from some quarters, with conservatives arguing her selection “should frighten every American taxpayer”.

Jennifer Granholm, former governor of Michigan, speaks during TechCrunch Disrupt 2019 in San Francisco
Jennifer Granholm, former governor of Michigan, speaks during TechCrunch Disrupt 2019 in San Francisco © Bloomberg

New leadership

Just as important as finance will be the shift in tone Granholm will bring.

While money kept flowing under the Trump administration, the agency lacked the strategic drive needed for clean tech innovation, said Emily Reichert, chief executive of Greentown Labs, North America’s biggest start-up incubator.

“When people look back on it, it was an absence of leadership — on innovation, on policy, on decisions, on strategy — that we needed to move forward faster,” she told ES.

The DoE’s role in convening experts from across the US has been central to driving the development of new technology. But as a divided country shifts rapidly towards a new approach to energy, that outreach role will be even more important.

That makes the appointment of Granholm key. A Michigan native, with years of experience dealing with the Detroit auto industry, she will be able to bring the climate change narrative to parts of the country that coastal liberals have often failed to reach.

“I think that Jennifer Granholm coming from a Midwestern perspective is a real game changer in terms of bringing the focus of this activity to the middle of the country, and recognising that the middle of the country can also get engaged in this developing the innovations around climate,” said Reichert.

But most importantly — four years after Donald Trump appointed an energy secretary who thought the department should be scrapped — Granholm’s championing of clean energy should get investors excited to spark the influx of funds needed for the “clean energy revolution” her boss has promised.

“The market signal it sends is that, one, the US is back in the game,” said Reichert. “And two, that climate related technology solutions around decarbonisation are a good place to invest your money, your time, your talents, and to move your assets.”

(Myles McCormick)

Data Drill

The energy transition could lower oil prices in the long term by $10 a barrel — by far the biggest threat to the net present value of oil companies, according to new research from Rystad Energy that assessed the resilience of 25 large operators. The consultancy quantified the risk to NPVs of stranded assets as less than 1 per cent, and that from rising CO2 costs at mostly below 10 per cent.

Oil sands and tight oil companies are most exposed to price risk because of high break-even costs. Oil sands would suffer most from higher CO2 costs. And ExxonMobil’s revenue risk is higher than its supermajor peers’, “primarily because its portfolio includes several large, capital-intensive projects”, including the Permian Basin assets and Guyanese shale.

Bar chart of Impact on net present value (%) showing The energy transition's corporate hit, quantified

Power Points

FT Energy Source Live

The FT Energy Source Live event will be taking place on 24 — 25 May 2021. Join industry CEOs, thought leaders, energy innovators, policymakers, investors and other key influencers to hear the latest thinking and insights on the future of US energy leadership and its global context. Find out more here.


IHSMarkit’s CERAWeek, cancelled by the pandemic last year, is back on — and it has a new look.

Keynote speeches and panel discussions have moved from the Hilton’s plush ballrooms in downtown Houston to a slick new web interface. Many have been pre-recorded. Deals that came together in the hotel’s executive suites will have to wait. Journalists are missing the free lunches.

Still, the conference’s agenda boasts a who’s who of the energy industry, and increasingly beyond, as the sector grapples with the low-carbon energy transition — a topic that was scarcely mentioned just a couple years ago.

Andy Jassy, the head of Amazon’s cloud business, who has been picked to succeed Jeff Bezos as the company’s CEO later this year, had some advice that cut to the heart of the dilemma facing oil executives.

“If you want to be a company for a long period of time — which by the way turns out to be really hard to do — you have to be able to reinvent yourself, sometimes several times over,” said Jassy in a session with BP’s Bernard Looney, who pitched his company’s own transition away from oil.

“If something is going to happen, whether it’s good for you or not, if it is good for customers it is going to happen,” added Jassy. “So you have a couple of choices: you can howl at the wind and wish it away as a lot of companies do — big leading companies do — when there are new shifts technology, or you can embrace it.”

Energy Source is a twice-weekly energy newsletter from the Financial Times. It is written and edited by Derek Brower, Myles McCormick, Justin Jacobs and Emily Goldberg.

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Hedge fund manager Hohn pays himself $479m




Billionaire hedge fund manager Sir Christopher Hohn has paid himself a dividend of $479m, one of the largest-ever annual personal payouts in the UK, after profits at his firm more than doubled last year.

Hohn, who is founder of Mayfair-based TCI Fund Management and one of the UK’s biggest philanthropists, made the payment to a company he controls during the year to February 2020, according to regulatory filings.

TCI, which manages more than $45bn in assets and tends to bet on rising rather than falling prices, has been a big winner from the bull market of recent years. During 2019 it made $8.4bn worth of profits for investors, according to LCH Investments, profiting from gains in stocks including Alphabet, Charter Communications and Canadian Pacific Railway.

TCI Fund Management’s profits for the year to February 2020 jumped 108 per cent to $670.9m. The $479m dividend was then paid to a separate firm TCI Fund Management (UK). Both companies are controlled by Hohn.

TCI declined to comment. The payment was first reported by The Guardian.

While the payout beats the £323m paid to Bet365 boss Denise Coates in 2018, much of it has been reinvested in TCI funds, filings show. It is also far from the biggest-ever hedge fund payday, being dwarfed by sums such as the $3.7bn earned by US manager John Paulson in 2007 thanks to bets on the subprime crisis.

In 2014, during testimony in his divorce battle with estranged wife Jamie Cooper-Hohn, Hohn described himself as “an unbelievable moneymaker”. A High Court judge later awarded Cooper-Hohn a $530m divorce payout.

Hohn, who grew up in Surrey and is the son of a Jamaican car mechanic, is known as one of Europe’s most aggressive activist investors. A backer of climate group Extinction Rebellion, he has been vocal in recent years in pushing companies to improve their climate policy, for instance threatening to sue coal-financing banks and warning his fund will vote against directors whose companies do not improve pollution disclosure.

In October Spanish airports operator Aena bowed to pressure from Hohn’s fund, becoming the first company in the world to give shareholders an annual vote on its climate policy.

Through his charity The Children’s Investment Fund Foundation, which in 2019 approved $386m of charitable payouts, he wrote to seven of the world’s biggest asset managers, urging them to put pressure on companies over climate policy.

Last year TCI was one of a number of funds looking to raise fresh assets from investors after suffering losses during the pandemic. It was also one of the big winners from betting against collapsed German payments group Wirecard, making as much as €193m in a week, according to data group Breakout Point.

Hohn’s fortune was estimated last year at £1.3bn by the Sunday Times Rich List.

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