Digital Transactions Authoritative, insightful and timely information for payments professionals
The news nearly three weeks ago that Capital One Financial Corp. is looking to acquire Discover Financial Services stunned the payments industry. But even if the $35.3-billion deal closes in the coming months it will represent a notable exception in the middle of a continuing slowdown in merger-and-acquisition activity in the payments industry.
Indeed, the deal count in payments, as measured by the number of announcements, has slumped from a recent high of 132 in 2021 to 114 in 2022 and just 71 last year, according to statistics kept by the Omaha, Neb.-based payments consulting firm TSG. The firm reported on Thursday its latest charting of M&A in payments. The year is young yet, but the number of M&A announcements in February was five, the same number as in February 2023, while the seven deals announced in January fell three short of the same month last year.
“M&A activity stagnates this past couple weeks across the payments industry as new deal announcements come to a halt. Starting this year with some steady activity, M&A deals have since decelerated following the later part of February,” notes the report.
Recent exceptions include not only the stunning Cap One-Discover announcement but also Payroc’s bid for Sterling Card Payment Solutions and Cantaloupe’s $4.75-billion deal for Cheq Lifestyle Technology. The latter transaction brings Cantaloupe into the hotly competitive market for ticket and food sales at sports stadiums.
Several factors can account for the slowdown in deals. One is the steady rise over the past year in the Federal Funds Rate. It stood at 4.57% a year ago but steadily climbed in succeeding months, reaching its current rate, 5.33%, late in July. The Fed Funds rate typically acts as a benchmark for bank loan rates. Another factor is unrealistic valuations by sellers, some experts say, which either discourages buyers or leads to prolonged negotiations.
TSG’s report indicates more potential deals could emerge as March unfolds, but the deal count for the first quarter will “likely” fall short of the 19 seen in the same period last year. The hopeful note, the report says, is that “interest in M&A opportunities continues to be apparent for the payments industry.”
