Nuvei Acquires Paya in a $1.3bn Deal
Deal Overview
In January 2023, it was announced that Nuvei, a Canadian fintech company, will acquire Paya, a leading American provider of integrated payment and commerce solutions. The acquisition will be a $1.3 billion all-cash transaction carried out through a definitive agreement.
Acquisition Price: $9.75 per share, 25% premium to the January 6, 2023 closing price and a 30% premium to the 90-day volume-weighted average share price.
Transaction multiples: 13x EV/2023E Adjusted EBITDA, which indicates the perceived value of Paya and implies a good return on investment for Nuvei.
Synergies: The deal is expected to create cost synergies of $21 million as well as revenue synergies by using Nuvei’s global capabilities to offer additional services to Paya’s customers.
Financing Breakdown: This acquisition will be financed by cash reserves, an already established credit arrangement, and a new first-lien secured credit facility of $600m.
This deal is expected to be completed by the end of the first quarter of 2023, the deal secured the green light from the two companies boards.
Reasons for the Acquisition
Diversification
Nuvei acquires Paya to enhance its ability to execute high-growth integrated payment opportunities, diversify its business across high-growth, underpenetrated, and non-cyclical end markets, and amplify its existing growth strategy.
Consolidation
Paya's software integrations with over 300 independent software vendor platforms and end-to-end commerce solutions provide Nuvei with the opportunity to capitalize on the domestic and global software-led market.
Operational Synergies
The acquisition plugs Paya's highly complementary integrated payment capabilities into Nuvei's global technology platform for an enhanced customer proposition and incremental growth opportunities.
High growth Market Potential
With the U.S. B2B payments middle market expected to grow at a 10%+ CAGR and estimated at $2.3 trillion, Paya's ERP integrations and end-to-end commerce solutions provide Nuvei with the opportunity to capitalise on this growing market.
Globalisation
The acquisition broadens Nuvei's strong Integrated Software Vendors and eCommerce capabilities to enter new markets and expands its M&A scope to include ISV, B2B, and proprietary software opportunities.
Nuvei Overview
Nuvei (Nasdaq: NVEI) is a Canadian fintech firm founded in 2003. Nuvei implements flexible and scalable technology allowing leading companies to accept next-gen payments.
Nuvei’s clients benefit from card issuing, banking, risk and fraud management services. Nuvei’s target markets include sports betting, gaming, online retail, marketplaces, financial services and travel – to name a few.
Nuvei initially went public in Sept 2020 with a US$700m IPO on the Toronto Stock Exchange. A year later, in Oct 2021 Nuvei closed a US$424.8m IPO on NASDAQ.
Nuvei’s large increase in revenue from 2021 to 2022 can be attributed to the firms’ IPO on the NASDAQ as well as their acquisitions of Mazooma (Aug 2020) and Simplex (Sep 2020).
Paya Overview
Paya (Nasdaq: PAYA) is an American payment processor firm founded in 2006. Paya is a leading provider of integrated payment solutions helping customers make and accept payments, expedite receipts and increase operating efficiencies.
Paya processes over US$40bn of annual payment volume across cards, Automated Clearing House (ACH), and cheque payments serving more than 100,000 customers.
Paya initially went public in Oct 2020 with a US$245m IPO on NASDAQ. The highlight of Paya’s financials is the increase in EPS, the revenue increase was in line with analyst estimates however EPS surpassed analyst estimates by 11% (Yahoo Finance).
Industry Overview
The payment industry has undergone significant changes thanks to technological advancements. Traditional financial institutions and banks are joining forces with technology companies to establish deeper connections with their customers.
Integrated payment is currently the fastest-growing industry in the US. The US digital payment market size was valued at $20.6B in 2021 and is expected to expand at a compound annual growth rate (CAGR) of 18.5% from 2023 to 2030.
E-commerce and digital payment growth have been expedited since the COVID-19 pandemic, resulting in a greater number of customers making purchases online. There has been increased dependence on mobile and internet services to access payment gateways and other online platforms.
Valuation Analysis
We used The Sparks Discounted Cash Flow Model to analyse and calculate the intrinsic value of Paya Holdings Inc.
Our WACC was calculated as 7.45%. With interest rates in the US on the rise, we estimated the risk-free rate at 7% (inflation for January 2023 + 1%), Paya’s Beta is 0.36, and the Cost of Debt is 5.1%.
Our DCF model yielded an intrinsic value of $7.04 per share, a 27.8% discount to the final acquisition price of $9.75 that Nuvei will pay. We used a range of analyst consensus estimates to build our model (Revenue Growth etc) to ensure maximum accuracy.
With weak economic and market conditions, Nuvei have paid a significant synergy premium to ensure the deal was completed
SWOT Analysis and Conclusion
All considered this acquisition will comprehensively strengthen Nuvei in its ambition to increase market share while aiming to break into different markets. However, poor economic conditions and tightening regulatory scrutiny may cause some unforeseen headwinds in the journey to capturing a larger market share.
I hope you enjoyed the article!
See you next month,
Andre, Celine & Roman
Disclaimer
This communication is for informational and educational purposes only and should not be taken nor used as investment advice, as a personal recommendation, or solicitation to buy or sell any financial instrument. This material has been prepared without considering any particular recipient’s investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or structured product are not, and should not be taken as, a reliable indicator of future performance. I assume no liability as to the accuracy or completeness of the content of this publication.